Wine Industry Economics

The Palgrave Handbook of
Wine Industry Economics

Edited by
Adeline Alonso Ugaglia · Jean-Marie Cardebat
Alessandro Corsi
The Palgrave Handbook of Wine Industry Economics
mmorag@uchile.cl
Adeline Alonso Ugaglia
Jean-Marie Cardebat • Alessandro Corsi
Editors
The Palgrave
Handbook of Wine
Industry Economics
mmorag@uchile.cl
Editors
Adeline Alonso Ugaglia Jean-Marie Cardebat
Bordeaux Sciences Agro University of Bordeaux
University of Bordeaux Pessac, France
Gradignan, France
Alessandro Corsi
University of Turin
Turin, Italy
ISBN 978-3-319-98632-6 ISBN 978-3-319-98633-3 (eBook)

https://doi.org/10.1007/978-3-319-98633-3
Library of Congress Control Number: 2018964901
© The Editor(s) (if applicable) and The Author(s) 2019

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mmorag@uchile.cl
Acknowledgments
This book received contributions from economists from Europe, South and
North America, Australia, South Africa and China. It describes and examines
varying models of wine industry in different countries. Two main models are
generally used to describe wine industries, Old and New wine worlds (appel-
lation regimes vs. brands and varietals), which are generally discussed and
compared with respect to their efficiency. What makes the difference between
these models? The industrial organization does. This book therefore proposes
a discussion of these models and highlights the key variables of the efficiency
of industrial organization in the wine industry worldwide for the first time.
This comprehensive volume is essential reading for students, researchers and
professionals in the wine industry.
Publishing a book is a long way off and this book would have not been
written without the help and encouragement of a lot of people and institu-
tions. This work received a grant from the Excellence Initiative of Bordeaux
University (2014–2015) (Initial Support for Exploratory Projects-PEPS
Emrgc 2014–2015_Adeline Alonso Ugaglia/MOMAVI/Modeling the
wine market in the Traditional Producing Countries (TPC)). Thanks to
this grant we have been able to have all the global experts contributing
together to this challenging project. It has also received the support of the
Bordeaux Wine Economics (BWE) group (bordeaux-wine-economics.
com). We would like to thank particularly our Editorial Advisory Board
who actively participated in this project since the early beginning and have
welcomed our meetings over the years to prepare the book. Of course, this
book would not exist without the contributions of all the authors who
have kindly accepted to take part to this original work. We thank them for
providing high-quality chapters specifically written for the book and to
mmorag@uchile.cl
vi Acknowledgments
comply with all the requirements we had. During the last months, the first
proposal has benefited from the suggestions made by the peer reviewers.
We have also been greatly helped by Laura Pacey and Clara Heathcock
from Palgrave Macmillan in the editorial preparation, and by Sarulatha
Krishnamurthy during the publishing process.
mmorag@uchile.cl
Contents
1 Introduction 1
Adeline Alonso Ugaglia, Jean-Marie Cardebat, and Alessandro Corsi
Part I Structure of the Wine Sectors Worldwide 15
2 The French Wine Industry 17

Adeline Alonso Ugaglia, Jean-Marie Cardebat, and Linda Jiao
3 The Italian Wine Industry 47

Alessandro Corsi, Simonetta Mazzarino, and Eugenio Pomarici
4 The Spanish Wine Industry 77

Luis Miguel Albisu, Cristina Escobar, Rafael del Rey, and José María
Gil Roig
5 The US Wine Industry105

James T. Lapsley, Julian M. Alston, and Olena Sambucci
6 The Australian Wine Industry131

Kym Anderson
7 The Argentinean Wine Industry155

Javier Merino
vii
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viii Contents
8 The Chilean Wine Industry177

G. Marcos Mora
9 The South African Wine Industry201

Nick Vink
10 The Chinese Wine Industry225

Linda Jiao and Shan Ouyang
Part II Regulations in the Wine Sector 247
11 Introduction: Regulations in the Wine Sector249

Paola Corsinovi and Davide Gaeta
12 International Wine Organizations and Plurilateral

Agreements: Harmonization Versus Mutual Recognition of
Standards253
Raúl Compés López
13 The European Wine Policies: Regulations and Strategies265

14 Barriers to Wine Trade291

Angela Mariani and Eugenio Pomarici
Part III Diversity of Organization in the Wine Industry 317
15 Introduction: The Diversity of Organizational Patterns in the

Wine Industry319
16 The Organization of Vineyards and Wineries325

Douglas W. Allen and Dean Lueck
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Contents ix
17 Wine Co-operatives and Territorial Anchoring339

Marie-Claude Bélis-Bergouignan and Nathalie Corade
18 Diversity and a Shifting Power Balance: Negociants and

Winegrowers in Bordeaux363
Sofya Brand
Part IV Backward Vertical Integration 381
19 Introduction: Outsourcing Versus Integration, a Key Trade-

Off for Wine Companies?383
Georges Giraud
20 To Make or to Buy? A Managerial Trade-Off of Winemaking

Process in the Burgundy Vineyards389
Georges Giraud and Abdoul Diallo
21 Vertical Integration and Financial Performance of French

Wine Farms and Co-operatives403
Adeline Alonso Ugaglia and Julien Cadot
22 The Prosecco Superiore DOCG Industry Structure: Current

Status and Evolution over Time421
Eugenio Pomarici, Luigino Barisan, Vasco Boatto, and Luigi Galletto
23 International Perspectives on Backwards Vertical Integration437

Alfredo Coelho and Etienne Montaigne
Part V Efficiency of the Business Models in the Different Wine

Industries 453
24 Introduction: Does a National Model Exist Which Favors

Trade Performance?455
Jean-Marie Cardebat
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x Contents
25 Individual and Collective Reputations in the Wine Industry463

Florine Livat
26 The Chilean Wine Cluster 487

27 Producing and Consuming Locally: Switzerland as a Local

Market507
Philippe Masset and Jean-Philippe Weisskopf
28 Conclusion: What’s Next?523

Adeline Alonso Ugaglia, Jean-Marie Cardebat, and Alessandro Corsi
Index531
mmorag@uchile.cl
Editorial Advisory Board
Luis Miguel Albisu is Chairman Scientific Committee, Centro de Investigación y

Tecnología Agroalimentaria de Aragón (CITA), Zaragoza, Spain.
José María Gil Roig is Professor of Agricultural Economics at the School of
Agriculture, Polytechnic University of Catalonia, Spain, and Director of the Center
for Research in Agro-Food Economics and Development CREDA-UPC-IRTA
(Centre de Recerca en Economia i Desenvolupament Agroalimentari - Universitat
Politècnica de Catalunya - Institut de Recerca i Tecnologia Agroalimentàries), Spain.
Simonetta Mazzarino is Assistant Professor and Confirmed Researcher of
Agricultural Economics in the Department of Economics and Statistics “Cognetti de
Martiis”, University of Turin, Italy.
xi
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Notes on Contributors
Luis Miguel Albisu is Chairman Scientific Committee, Centro de Investigación y

Tecnología Agroalimentaria de Aragón (CITA), Zaragoza, Spain.
Douglas W. Allen is a Burnaby Mountain Professor in the Department of
Economics, Simon Fraser University, USA.
Adeline Alonso Ugaglia is Associate Professor of Economics at Bordeaux Sciences
Agro, France. She is a board member of the American Association of Wine Economists
and takes part to the Editorial Advisory Board of the Journal of Wine Economics. She
is one of the International Organisation of Vine and Wine (OIV) experts represent-
ing France in the group ENVIRO “Sustainable development and climate change”.
Julian M. Alston is a distinguished professor in the Department of Agricultural and
Resource Economics; Director of the Robert Mondavi Institute Center for Wine
Economics at the University of California, Davis; and a member of the Giannini
Foundation of Agricultural Economics, USA.
Kym Anderson is the George Gollin Professor of Economics, foundation Executive
Director of the Wine Economics Research Centre and formerly foundation Executive
Director of the Centre for International Economic Studies at the University of
Adelaide, and Professor of Economics in the Crawford School of Public Policy,
Australian National University, Australia.
Luigino Barisan works at the Interdepartmental Centre for Research in Viticulture
and Enology (CIRVE), University of Padova, Conegliano, Italy.
Marie-Claude Bélis-Bergouignan is Emeritus Professor of Economics at Bordeaux
University (GREThA, UMR CNRS 5113), France.
Vasco Boatto is Full Professor of Wine Economics, University of Padua, Italy, mem-
ber of Interdepartmental Centre for Research in Viticulture and Enology of Padua
University and chief of economics center of Prosecco district, Italy.
xiii
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xiv Notes on Contributors
Sofya Brand is postdoctoral researcher in the Department “Management, Marketing

et Stratégie” (MMS), Institut Mines Télécom Business School, France.
Julien Cadot is Associate Professor of Finance at Institut Supérieur de Gestion
(ISG) Paris, France, and is an adjunct faculty member of the Wine Executive MBA
Hybrid Program of the Sonoma State University, USA. He is in the board of the
French Association of Agricultural Economists (Société Française d’Economie
Rurale) and of the Wine Business Case Research Journal. His research deals with corpo-
rate governance in agribusiness, with a focus on the wine industry.
Jean-Marie Cardebat is Professor of Economics at the University of Bordeaux,
France, and Affiliate Professor at INSEEC (School of Business and Economics)
Bordeaux, France.
Alfredo Coelho is Associate Professor of Management at Bordeaux Sciences Agro,
France.
Raúl Compés López has a Ph.D. in Agricultural Engineering awarded from the
Universitat Politècnica de València (UPV), Spain. He is a senior professor in the
Department of Economics and Social Sciences of the UPV. His areas of expertise are,
among others, public policy and markets of the agri-food sector, specialized in wine.
Nathalie Corade is Associate Professor of Economics at Bordeaux Sciences Agro,
France, since 1995. Her recent researches focus on short and local food circuits, local
food systems and food projects of territories. She is interested in the link between
these initiatives and the sustainable development of the territories. She worked previ-
ously on the link between the wine sector and the development of territories and was
especially interested on the mergers of wine cooperatives and their impact on the
territories on which they were historically built.
Alessandro Corsi is Associate Professor of Agricultural Economics at the University
of Turin, Italy.
Paola Corsinovi is a Professor at the Hochschule Geisenheim University (Germany)
affiliated with the Center of Economics of Geisenheim University. Her research
focuses on the European Agricultural Policy with particular to the wine sector and
the effects of decision-making and lobby groups.
Rafael Del Rey is General Director of the Spanish Observatory of Wine Markets
(OEMV) as well as General Manager of the Foundation for the Culture of Wine,
Spain. Graduated in Political Science from the University of Madrid and MA in
International Studies at Johns Hopkins’ School of Advanced International Studies
(SAIS), he teaches in several universities in Spain and other European countries; he
writes articles on the economic situation of wine and gives dozens of presentations
per year on the economic and legal situation of wine in Spain and the world.
Abdoul Diallo is an Assistant Engineer, Specialist of GIS and data analyst at
AgroSup Dijon, France.
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Notes on Contributors xv
Cristina Escobar is a Researcher and a Consultant from CREDA-UPC-IRTA (Centre

de Recerca en Economia i Desenvolupament Agroalimentari - Universitat Politècnica
de Catalunya - Institut de Recerca i Tecnologia Agroalimentàries), Center for research
in Agro-Food Economics and Development, Barcelona, Spain.
Davide Gaeta is an Associate Professor in the Department of Business Administration
at the University of Verona, Italy, where he teaches agribusiness, wine firm manage-
ment and wine policy. He is the co-author of the book Economics, Governance, and
Politics in the Wine Market: European Union Development published by Palgrave
Macmillan. He has managed private and public organizations in the wine sector.
Luigi Galletto is Associate Professor of Wine Economics and Marketing in the
Department of Land, Environment, Agriculture and Forestry, University of Padua,
Italy.
José María Gil Roig is Professor of Agricultural Economics at the School of
Agriculture, Polytechnic University of Catalonia, Spain, and Director of the Center
for Research in Agro-Food Economics and Development CREDA-UPC-IRTA
(Centre de Recerca en Economia i Desenvolupament Agroalimentari - Universitat
Politècnica de Catalunya - Institut de Recerca i Tecnologia Agroalimentàries), Spain.
Georges Giraud is Professor of Agri-food Marketing at AgroSup Dijon, Graduate
School of Agronomy, University Bourgogne Franche-Comté, France.
Linda Jiao is a Ph.D. student in Economics at the University of Bordeaux (Larefi),
France
James T. Lapsley is Adjunct Associate Professor in the Department of Viticulture
and Enology at the University of California, Davis, and academic researcher at the
University of California Agricultural Issues Center, USA.
Florine Livat is Associate Professor of Economics at the KEDGE Business School,
Bordeaux, France.
Dean Lueck is Director of the Program on Natural Resource Governance at the
Ostrom Workshop at Indiana University, where he is also Professor of Economics and
affiliated professor at the Maurer School of Law, USA.
Angela Mariani is Professor of Agribusiness and International Trade in the
Department of Economic and Legal Studies at the University of Naples “Parthenope”,
Italy.
Philippe Masset is Assistant Professor of Finance at Ecole hôtelière de Lausanne,
Switzerland. He holds a Ph.D. in Financial Economics and his research focuses on
wine economics, alternative investments, hospitality finance.
Simonetta Mazzarino is Assistant Professor and Confirmed Researcher of
Agricultural Economics in the Department of Economics and Statistics “Cognetti de
Martiis”, University of Turin, Italy.
mmorag@uchile.cl
xvi Notes on Contributors
Javier Merino is Professor of Economy and Project Evaluation at the Agrarian

Faculty, National University of Cuyo, Argentina, and University of Mendoza,
Argentina.
Etienne Montaigne is Professor of Agricultural and Food Industry Economics in
the Department of Agricultural Economics, Montpellier SupAgro, France.
G. Marcos Mora is Assistant Professor and Researcher in Agribusiness and Food
Marketing in the Department of Agricultural Economics, Faculty of Agricultural
Science, University of Chile, Chile.
Shan Ouyang works for Beijing Artix Investment Company Co., Ltd, China.
Eugenio Pomarici is Full Professor of Agricultural Economics a the University of
Padova (Dep. TeSAF), Italy, affiliate to the Interdepartmental Centre for Research in
Viticulture and Enology (University of Padova) and past President of the Economy
and Law Commission of OIV, Italy.
Olena Sambucci is a Postdoctoral Scholar in the Department of Agricultural and
Resource Economics at the University of California, Davis, USA.
Nick Vink is Professor and Chair of the Department of Agricultural Economics,
Stellenbosch University, South Africa, and a Non-executive Director of the South
African Reserve Bank, South Africa.
Jean-Philippe Weisskopf is Assistant Professor of Finance at Ecole hôtelière de
Lausanne, Switzerland.
mmorag@uchile.cl
List of Figures
Fig. 1.1 The growth of world wine exports 1995–2017 (volumes in thou-
sands of hL). (Source: OIV stats, http://www.oiv.int/fr/bases-de-
donnees-et-statistiques)3
Fig. 1.2 The emergence of the New World in the world wine trade. (Note:
Exported volumes in thousands of hectoliters; Source: OIV stats,
http://www.oiv.int/fr/bases-de-donnees-et-statistiques)5
Fig. 2.1 French wine imports and exports (in volume and value). (Source:
OIV stats, http://www.oiv.int/fr/bases-de-donnees-et-statistiques)20
Fig. 2.2 Wine production and consumption in France. (Source: OIV stats,
http://www.oiv.int/fr/bases-de-donnees-et-statistiques)22
Fig. 2.3 Evolution of organic surfaces in France (ha). (Source: Agence BIO
2017)29
Fig. 2.4 Wine harvest in France by region and color (2015). (Source:
DGDDI-CVI Harvest 2005–2015) 32
Fig. 2.5 AOC and PGI and wine color (2010). (Source: Agreste Primeur
2011)33
Fig. 2.6 Winemaking processing (volume, 2010). (Source: Agreste Primeur
2011)34
Fig. 2.7 On-farm winemakers’ distribution channels by percentage of vol-
ume. (Source: RGA 2010) 36
Fig. 2.8 Distribution channels (percentage of volume). (Source: Author’s
calculation based on RGA 2010) 37
Fig. 3.1 Geographical divisions and main wine-producing Regions 50
Fig. 3.2 Wine consuption flows. (Source: ISMEA, Scheda di settore 2015) 66
Fig. 3.3 Estimable grape flows among operators for total wine, generic
wine, GI wine, PDO wine. (Map legend: Grape flows share for
total wine (generic wine, PGI wine, PDO wine)) 69
xvii
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xviii List of Figures
Fig. 4.1 Evolution of the vineyard area and the production of grapes in
Spain. (Source: Own elaboration from Agriculture Yearbooks and
Agriculture Statistics. MAGRAMA. Spanish Ministry of
Agriculture, Food and Environment (MAGRAMA 2016)) 79
Fig. 4.2 Wine vineyard specialization in Spain (2012). (Source: Own elabo-
ration from the Agriculture Yearbook 2013. MAGRAMA. Spanish
Ministry of Agriculture, Food and Environment (MAGRAMA
2015c))80
Fig. 4.3 Distribution of the main grape varieties in Spain (% on total sur-
face) (2014). (Source: Own elaboration from the Inventory of
wine-growing potential, 2015. MAGRAMA. Spanish Ministry of
Agriculture, Food and Environment (MAGRAMA 2015d)) 83
Fig. 4.4 Economic results of the Spanish viticulture holdings (euro).
([*Preliminary data] Source: Own elaboration from FADN 2018
(European Commission)) 85
Fig. 4.5 The Spanish market for wine (million liters). (Source: OeMv
(2018) (Spanish acronym for Spanish Observatory of Wine
Markets))91
Fig. 4.6 Spanish wine exports. (Source: OeMv (2018) (Spanish acronym
for Spanish Observatory of Wine Markets)) 92
Fig. 4.7 Spanish wine sales structure for the domestic market (%) (e = esti-
mation). (Source: OeMv (Spanish acronym for Spanish Observatory
of Wine Markets)) 95
Fig. 4.8 Wine consumption at home in Spain (liters per capita). (Source:
Own elaboration from MAPAMA. Spanish Agriculture Ministry.
Food Consumption Panel (MAPAMA 2018)) 97
Fig. 4.9 Place of purchase of wine for at-home consumption in Spain (%).
(Source: Own elaboration from MAGRAMA. Spanish Agriculture
Ministry. Food Consumption Panel (MAGRAMA 2015e)) 98
Fig. 5.1 US wine regions—area, volume, and value of production, 2016.
(Source: Created by the authors using data from USDA/NASS
2016a, 2016b, 2017, 2018) 109
Fig. 5.2 Volume shares (%) of tax-paid, domestically bottled wine, by wine
type, 2016. (Source: Created by the authors using data from US
Treasury/TTB 2016c) 116
Fig. 5.3 Volume and value of US imports and exports of wine, 1966–2015.
(Source: Fig. 5 in Alston et al. (2018a). Data are from ITC (2018).
Notes: Nominal monetary values in these graphs were deflated by
the consumer price index (CPI) for all goods taken from USDL/
BLS 2015) 120
Fig. 6.1 Bearing area of vineyards, Australia (upper line) and South Australia
(lower line), 1843 to 2013 (hectares). (Source: Anderson 2015,
Chart 5) 133
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List of Figures xix
Fig. 6.2 Vine area, wine production and wine exports, Australia, 1843 to
2013 (log scale). (Source: Anderson 2015, Chart 9) 134
Fig. 6.3 Share of grape production used for winemaking, Australia, 1939 to
2013 (%). (Source: Anderson 2015, Table 8) 134
Fig. 6.4 Shares of table, fortified and distillation wine in total wine output,
Australia, 1923 to 2013 (percentage, three-year moving average
around year shown). (Source: Anderson 2015, Chart 31) 135
Fig. 6.5 Average price of winegrapes and of exports (RH axis), and vine area
(LH axis), Australia, 1986 to 2017 (A$/tonne, A$/hectoliter, and
‘000 hectares). (Source: Anderson 2015, Chart 17) 135
Fig. 6.6 Number of wineries in Australia, 1984 to 2016. (Source: Updated
from Anderson 2015, Table 21) 137
Fig. 6.7 Share of Australian wineries by crush, 1978, 1996 and 2016 (%).
(Source: Updated from Anderson 2015, Table 21) 138
Fig. 6.8 Shares of varieties in Australia’s winegrape-bearing area, 1956 to
2012 (%, three-year averages). (Source: Anderson 2015) 146
Fig. 6.9 Exports as percentage of wine production and imports as percent-
age of apparent wine consumption, Australia, 1843 to 2017 (per-
centage, three-year moving average around year shown). (Source:
Updated from Anderson 2015, Chart 8) 148
Fig. 6.10 Shares of the value of Australia’s exports to various regions, 1990 to
2017 (The 2016 data are for the 12 months to September 30).
(Source: Updated from Anderson and Nelgen 2013, Table 144) (%) 149
Fig. 7.1 Evolution of cultivated surface area of grapes for winemaking in
Argentina (ha). (Source: INV) 156
Fig. 7.2 Variation surface area (1990/2017). (Source: INV) 160
Fig. 7.3 Annual revenues in the viticulture sector (BB AR$ - Dec. 2017).
(Source: Area del Vino) 165
Fig. 7.4 Sales price vs. volume. (Source: Area del Vino) 167
Fig. 7.5 Total market in volume (millions of cases), average sales prices
(AR$ Dec. 2017/case), and annual revenues of wine (BB AR$ Dec
2017). (Source: Area del Vino) 171
Fig. 8.1 Chile: value chain in the wine industry 190
Fig. 9.1 The flow of product in the South African industry, 1982 206
Fig. 9.2 South Africa’s RCA in wine. (Source: Anderson and Pinilla 2018) 218
Fig. 10.1 Evolution of wine consumption and production in China. (Source:
Cossllected from OIV annual reports of World Vitiviniculture
Situation and OIV Statistics, 2013–2017) 226
Fig. 10.2 Main wine regions in China. (Drawn by author) 229
Fig. 10.3 China wine market share by volume. (Source: MarketLine 2015) 233
Fig. 10.4 Wine market share segmentation by color. (Source: MarketLine
2015 and author’s calculation based on Euromonitor International
2011, 2015) 237
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xx List of Figures
Fig. 10.5 Wine distribution in China. (Source: MarketLine 2015 and

author’s calculation based on Euromonitor International 2011,
2015)238
Fig. 10.6 Hourglass structure. (Drawn by author) 239
Fig. 10.7 Distribution chain of import wine in China. (Source: Wine
Intelligence 2013). Dashed line represents significant relationship
but with little volume 243
Fig. 13.1 Policy orientations through the % of budget expenditure. (Source:
Author’s dataset (elaboration from EAGGF annual expenditures),
2015)275
Fig. 13.2 National Programme Support 2019–2023: % of budget. (Source:
Financial Report, European Commission—DG AGRI (https://
ec.europa.eu/agriculture/sites/agriculture/files/wine/statistics/pro-
gramming-2019-2023_en.pdf ))275
Fig. 15.1 Simplified representation of wine industries for Old and New
world countries. (Source: Author; Note: The dashed arrows reflect
the potential financial contract to buy fresh grapes between pro-
ducers and co-operatives or between co-operatives and commercial
unions depending of the law status of the co-operative) 320
Fig. 15.2 Diversity of strategies for wine co-operatives. (Source: Corade et
Lacour 2015) 322
Fig. 18.1 Bulk wine price fluctuations in Bordeaux. (Source: FranceAgriMer) 374
Fig. 20.1 HAC dendrogram of wine business models in Chablis. (Source:
Authors)393
Fig. 20.2 HAC dendrogram of wine business models in Côte & Hautes
Côtes de Nuits. (Source: Authors) 394
Fig. 20.3 HAC dendrogram of wine business models in Côte & Hautes
Côtes de Beaune. (Source: Authors) 395
Fig. 20.4 Principal Component Analysis of winegrowers’ business models,
Burgundy 2011. (Source: Authors) 397
Fig. 21.1 Economic balance by level of vertical integration. (In dark gray,
“high balance” on the asset and liabilities, respectively, corresponds
to fixed assets and equity. In light gray, the “low balance” to match
assets and liabilities, respectively, in WCR and net debt) 411
Fig. 22.1 Conegliano Valdobbiadene Prosecco DOCG: trends in sparkling
wine market (bottles), 2003–2016. (*Sparkling: Prosecco Superiore
DOCG and Superiore di Cartizze DOCG; Source: Data process-
ing C.I.R.V.E., Conegliano, 2018) 423
Fig. 22.2 Conegliano Valdobbiadene Prosecco DOCG: trends in sparkling
wine sales on domestic and foreign markets, 2003–2016. (Source:
Data processing C.I.R.V.E., Conegliano, 2018) 424
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List of Figures xxi
Fig. 22.3 Conegliano Valdobbiadene Prosecco DOCG’ supply chains, 2016.

(*Prosecco Superiore DOCG Sparkling; = Production
linked to the related own firms; Source: Data processing C.I.R.V.E.,
Conegliano, 2018.) 427
Fig. 22.4 Conegliano Valdobbiadene Prosecco DOCG: concentration index,
2016. (Source: Data processing C.I.R.V.E., Conegliano, 2018) 430
Fig. 23.1 The 12 leading world wine producers by vine surfaces in 2016 (ha).
(Source: Annual Reports, International press) 443
Fig. 24.1 Change in exports in volume between 1995 and 2017. (Source:
OIV [Wine International Organization] statistics. Note: the per-
centages reported correspond to growth rates between 1995 and
2017. (*) For China, the data are from 1995 to 2014) 457
Fig. 24.2 Exportation rate in 2014 in function of origin indicators. (Source:
OIV statistics. Note: on the x-axis we find the number of PDOs
(for the European countries) or that of simple origin indicators
(DO for New World countries). The triangles indicate European
countries (except Georgia) and the circles represent New World
countries (including Georgia)) 458
Fig. 24.3 Trade balance relative to production volume (y-axis) in function of
the number of PDOs and DOs (x-axis) for a selection of countries
between 1995 and 2014. (Source: OIV statistics. Note: the ratio is
calculated on the basis of the trade balance divided by the produc-
tion of each country, with all the variables expressed in volume. On
the x-axis we find the number of PDOs (for the European coun-
tries) or that of simple origin indicators (DO for New World coun-
tries). The triangles indicate European countries (except Georgia)
and the circles represent New World countries (including Georgia).
Linear trends are given for the year 2014) 460
Fig. 25.1 Denominations of origin. (Source: Addor and Grazioli 2002,
p. 870)473
Fig. 26.1 An overview of the Chilean wine cluster. (Source: Adapted from
Wines of Chile) 493
Fig. 26.2 Establishment dates of grape nurseries and bodegas in Chile. (Note
1: new wineries include both the bodegas producing more than
300,000 liters and the bodegas with an export activity. Data
includes established wineries until 2011 (Source: INE); Note 2:
grape nurseries include the suppliers of Vitis vinifera plants and the
suppliers of table wine plants. Some of the grape nurseries supply-
ing plants for table grapes may also supply Vitis vinifera plants.
Data includes established firms in 2015 (Source: SAG)) 495
Fig. 26.3 Main joint-ventures and foreign investments in the Chilean wine
cluster (1979–2018). (Source: World Wine Data 2018) 499
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xxii List of Figures
Fig. 26.4 Evolution of wine grape plantings in Chile (ha) (1994–2014).

(Source: Elaborated by authors based on data from ODEPA) 501
Fig. 26.5 Exports of bottled wine from Chile per price bracket (US$/case)
(2014–2015). (Source: ODEPA) 503
mmorag@uchile.cl
List of Tables
Table 1.1 The top ten wine importers and exporters in 2017 3
Table 2.1 Surface, number and average size of grape-growing farms by
region (in 2010) (The three top regions, with more than
100,000 ha are in bold) 24
Table 2.2 Areas according to the varietals (%) 25
Table 2.3 Economic size according to the type of wine 26
Table 2.4 Repartition of organic farms and surfaces by region 30
Table 2.5 Four main French wine co-operatives 35
Table 2.6 Turnover of the three main downstream companies—still wine 38
Table 2.7 Cybercommerce in the French wine industry 41
Table 3.1 Number of farms producing wine grapes and vine-bearing area 49
Table 3.2 Italian wine production by type (hl, %) 53
Table 3.3 Total wine production by type of producer (2012) 56
Table 3.4 Shares of total wine production by type of wine, producer, and
area (2012) 57
Table 3.5 Bottling unit distribution by capacity 58
Table 3.6 Top 30 wine companies in Italy 61
Table 3.7 Percentage of Italian domestic supply by distribution channels
(2017, 155 top wine companies) 67
Table 4.1 Profile of the Spanish wine-exporting company in 2017 87
Table 4.2 Top 25 wineries in Spain according their sales in 2014 (million
Euros)88
Table 4.3 Spanish wine exports by type of wine in 2017 93
Table 5.1 Characteristics of US wine regions, 2016 data 107
Table 5.2 California: total grape area and number of grape-producing
farms, 2012 111
Table 5.3 California: size distribution of grape producers, 2012 112
xxiii
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xxiv List of Tables
Table 5.4 Characteristics of California winegrapes crushed, 2016 113

Table 5.5 Gallons of bottled wine removed tax paid into US market 116
Table 5.6 Share of all California wineries (2015) and tons crushed (2016)
by region 118
Table 5.7 Four largest US alcoholic beverage distributors, 2014 124
Table 5.8 Top ten wine-consuming states in 2016 125
Table 6.1 Share of Australia’s wine companies, by year of establishment,
2015136
Table 6.2 Number of Australian wineries by tonnes crushed, 1998 to 2016 137
Table 6.3 Various attributes of Australian wineries, 2000, 2010 and 2016 138
Table 6.4 Shares of domestic wine sales volume by largest four wineries,
Australia and other key wine-producing countries, 2009 and
2015(%)139
Table 6.5 Ranking of Australia’s largest wine companies by wine sales value
and other criteria, 2015 141
Table 6.6 Number, vine-bearing area and crush of Australian independent
and winemaker grape-growing establishments, by vineyard size
range (ha) and state, 2012 143
Table 7.1 Surface area of wine varieties (ha) 159
Table 8.1 Evolution of wine grape acreage by variety (ha) 180
Table 8.2 Cultivated area (ha) with grapevines in irrigated, rainfed and
tended irrigation areas 181
Table 8.3 Chile: surface area of vineyards according to conduction
system (ha) 182
Table 8.4 Costs and prices of wine grapes at producer level (dollars) 184
Table 8.5 Chile: production of wines by type of wine and market (million
liters)186
Table 8.6 Chile: exports of wines of denomination of origin in volume and
FOB value 187
Table 8.7 Concha y Toro Winery: segment, brand and price of their wines 194
Table 8.8 Santa Rita Winery: segment, brand and price 195
Table 9.1 Concentration in the market: a ‘new world’ comparison, 2014 (%) 210
Table 13.1 The development of European wine policies 268
Table 13.2 Total CMO wine expenditures, 1970–2015 270
Table 13.3 The main traditional terms as referred to EU Reg. 607/2009 284
Table 14.1 Types of tariffs in the international wine trade 293
Table 14.2 EU most favored nations import duties 294
Table 14.3 Non-tariff measures classification 295
Table 14.4 Import measures: technical measures 298
Table 14.5 Key elements in SPS and TBT agreements 300
Table 14.6 Wine exporter’s main free trade agreements (FTA) 305
Table 17.1 Co-operative mergers (1968–2006) 340
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List of Tables xxv
Table 17.2 Mergers’ initial causes and final objectives (number of answers to
these items/number of co-operatives studied) 349
Table 17.3 The determinants of a commitment to merger 354
Table 17.4 Similarity, learning processes and success conditions for merger 356
Table 17.5 Observable organizational changes post-merger 358
Table 18.1 Vineyard price in Bordeaux rouge equivalent 371
Table 18.2 Merchants’ concentration in Bordeaux 375
Table 18.3 Typology of negociants in Bordeaux: variables 376
Table 18.4 Typology of negociants in Bordeaux: results 378
Table 20.1 Number of wine estates according to the wine-grape-growing
area, Burgundy 2011 390
Table 20.2 Efficiency and profitability of wine estates according to size and
business model 398
Table 21.1 Number and wine farms’ allocation 406
Table 21.2 Size, sales and distribution channel 407
Table 21.3 Economic balance by level of vertical integration 410
Table 21.4 Vertical integration and profitability ratios 411
Table 21.5 Vertical integration and financial risk 412
Table 21.6 Product price and price paid to producers 416
Table 21.7 Margins, obsolescence and leverage 417
Table 22.1 Prosecco Superiore DOCG price differentiation by type of supply
chain, wine destination and size on domestic market, 2016 428
Table 22.2 Conegliano Valdobbiadene Prosecco’s companies: concentration
index, 2008–2016 431
Table 22.3 Prosecco Superiore DOCG producers’ distribution by type of
supply chain and bottling size, 2016 431
Table 22.4 Prosecco Superiore DOCG industry structure: evolution over
the period analyzed, 2010–2016 432
Table 23.1 Concha y Toro: expansion of vineyard surfaces 2002–2018 (ha) 445
Table 23.2 Concha y Toro: expansion of vineyard surfaces in Chilean valleys
2005–2015 (ha) 445
Table 24.1 Average export price in 2017 (in € per liter) 457
Table 26.1 Main wine-related Programs for Modernization and
Competitiveness (PMCs) 490
Table 26.2 Concentration of the market shares in the domestic market of
the leading wine firms in Chile (% of the total volumes) 496
Table 26.3 Evolution of wine grape plantings in the main regions in Chile
(2000–2014) (ha) 502
Table 26.4 Evolution of grape variety plantings, wine production, and
exports in Chile (2000–2015) 502
Table 27.1 Consumption, imports and exports (2008–2013) 513
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1
Introduction
Adeline Alonso Ugaglia, Jean-Marie Cardebat,
and Alessandro Corsi
The Palgrave Handbook of Wine Industry Economics examines varying models

of wine industry in different countries and their relevance. The wine indus-
try can be seen as a microcosm of globalization nowadays. It faces the same
evolution as other industries in the 1990s: emergence of New producing
and consuming countries and rising competition. Over the last 15 years,
the international wine market has changed. New competitors appeared on
the international scene and joined the top wine producers and exporters.
The relatively new hierarchy of wine-producing countries could remain
similar for the ten next years, but a process of convergence seems to be
under way.
A. Alonso Ugaglia (*)
Bordeaux Sciences Agro, University of Bordeaux, Gradignan, France
e-mail: adeline.ugaglia@agro-bordeaux.fr
J.-M. Cardebat
University of Bordeaux, Pessac, France
INSEEC Bordeaux, Bordeaux, France
e-mail: jean-marie.cardebat@u-bordeaux.fr
A. Corsi
University of Turin, Turin, Italy
e-mail: alessandro.corsi@unito.it
© The Author(s) 2019 1

A. Alonso Ugaglia et al. (eds.), The Palgrave Handbook of Wine Industry Economics,
https://doi.org/10.1007/978-3-319-98633-3_1
mmorag@uchile.cl
2 A. Alonso Ugaglia et al.
1.1 A
Global Panorama of Trade Flows
from Leading to Emerging Countries
In recent years, growth in world trade has accelerated and competition has
increased. The financial and economic crisis had a deep impact on the world
wine industry, both in the producing countries and in the consumer markets.
The wine market has to face a globalization process like all the other sectors,
following the same phases. Initially concentrated in a small number of coun-
tries, the wine trade has opened up to the world, bringing in new competitors.
In the process of globalization, it is not only the goods that are traded but also
the factors of production. The internationalization of the market therefore
also affects direct investment abroad and labor.
But if the globalization of the sector is today very advanced, we can wonder
how it will evolve and what the consequences for the wine industries are
worldwide. What forms could the future panorama of world trade take?
Several scenarios have to be considered.
Globalization comes with phases of emergence of new countries beginning
to participate in the exchanges. The wine sector is no exception to this
dynamic. After the growth of wine trade within a club limited to a few devel-
oped countries, a second phase of emergence has seen the New World coun-
tries take over. The leaders of the Old World are competing with the outsiders
of this New World, mainly in terms of price competitiveness. A third phase of
emergence is at work. It mainly concerns China, whose vineyard is one of the
largest in the world. The question is to identify when its exports will compete
with those from other producing countries.
1.1.1 F irst Phase: Trade Growth Between the Developed

Countries
Since the 1990s, two remarkable facts have to be noticed concerning the
international wine trade. First, the strong growth in trade, since global wine
exports have globally doubled between 1995 and 2015. Growth is even more
pronounced in value than in volume (see Fig. 1.1), reflecting a rise in the aver-
age quality of wine exchanged on the market. This increase in trade highlights
the globalization of the sector. We can note that global trade has been growing
rapidly and steadily since the mid-1950s and faced a significant decline in
2009 for the first time since the beginning of the decade followed by a rebound
in the following years.
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Introduction 3
70000 35000
60000 30000
50000 25000
40000 20000
30000 15000
20000 10000
10000 5000
0 0
1995 2000 2005 2010 2015
Old World (le scale) New world (right scale)
Fig. 1.1 The growth of world wine exports 1995–2017 (volumes in thousands of hL).
(Source: OIV stats, http://www.oiv.int/fr/bases-de-donnees-et-statistiques)
Table 1.1 The top ten wine importers and exporters in 2017
Importers Exporters
Euro/ Euro/
Country Volume Value liter Country Volume Value liter
Germany 15.2 2469 1.62 Spain 22.1 2814 1.27
United 13.2 3452 2.62 Italy 21.4 5873 2.74
Kingdom
United States 11.8 5190 4.40 France 15.4 8989 5.84
France 7.6 812 1.07 Chile 9.8 1741 1.78
China 7.5 2458 3.28 Australia 8 1727 2.16
Russia 4.5 878 1.95 South Africa 4.5 583 1.3
Netherlands 4.4 1139 2.59 Germany 3.8 926 2.44
Canada 4.1 1653 4.03 United 3.3 1280 3.88
States
Belgium 3.1 897 2.89 Portugal 3 752 2.51
Japan 2.6 1388 5.34 New Zealand 2.5 1054 4.22
Note: Volumes are in million hectoliters and values in million Euros
Source: OIV stats, http://www.oiv.int/fr/bases-de-donnees-et-statistiques
Second, the high concentration of trade among six countries is the other
feature of wine trade (see Table 1.1). The three largest exporters are tradition-
ally Spain, Italy, and France. In 1995, they accounted for 80% of total exports
in volume, just over 66% in 2017. These exports are largely directed to three
major consumer countries: the United States, the United Kingdom, and
Germany. These countries concentrated 80% of imports in volume in 1995,
about 54% in 2017. The international wine trade thus remains very concen-
trated despite a trend decrease of this degree of concentration.
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The disparities in value and volume reflect the positions of the competitors
in the wine market. Table 1.1 shows that Spain dominates exports in volume,
whereas in value France is in a clear leadership position. These two countries
made different strategic choices. Spain has a very aggressive strategy in terms
of price on the international market, while France, unable to compete in
terms of price, prefers a non-price competitiveness, especially focused on
quality, the country, and the region of origin remaining a very important vec-
tor of image when a consumer purchases a wine. Italy is halfway between
these two competitors in terms of strategic positioning, though it is increas-
ingly moving toward a focus on quality.
The Spanish and French positioning, quite focused on the low or high end,
can pose some problems. Of course, a very large diversity of producers exists
in all countries, in Spain and France in particular, occupying all segments of
the range. It is therefore advisable to remain cautious with the generalizations.
Nevertheless, in Spain, the trap would be to devalue the image of the products
with prices too low and thus prevent some vineyards to be upgraded. The
production of bulk wine at a very low price, which is then exported to coun-
tries bottling and marketing it (mainly France), removes for Spain the main
part of the added value coming of marketing.
For France, the trap would be to leave the segment of low- and mid-range
wines and to promote luxury too much. Obviously, luxury is a segment with
very high added value, but gradually abandoning the lower segments would
lead to the ruin for many vineyards. Luxury is inherently reserved for a small
number of producers. The challenge is to keep a qualitative image for French
producers but without offering exclusive wines, which we open only on rare
occasions. The large size of the French vineyard indeed requires volume strate-
gies and not only exclusive upmarket strategies moving toward the ultra-
premium segments.
From this point of view, and still on a very global scale, the Italian strategy
is probably the most balanced between high-volume production with a good
added value, as attested, for example, by the international success of Prosecco,
and the more exclusive productions from Tuscany and Piedmont.
1.1.2 S
econd Phase: The Emergence of the New World
and the Arrival of Outsiders
Wines from the New World’s countries appeared in the international trade of
wines at the end of the 1990s. Figure 1.2 reveals the intensity of the increase
of exports in volume, while Table 1.1 shows the values of these exports in
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Introduction 5
25,000
20,000
15,000
10,000
5,000
0
Italy France Spain Argentina US Chile Australia South China
Africa
1995 2017
Fig. 1.2 The emergence of the New World in the world wine trade. (Note: Exported
volumes in thousands of hectoliters; Source: OIV stats, http://www.oiv.int/fr/bases-de-
donnees-et-statistiques)
2015, both in volume and in value. The last column of this table also shows
the average price of a liter of wine exported by each country.
The performances of Chile and Australia appear to be the most remarkable.
These countries are emerging as the leaders of the New World. Their wine
sector is export oriented and very well organized through clusters drawn by
leading companies. They have raised their brands to top 10 of the world’s
leading brands. These countries are at the same time competitive on the costs
but with, in addition, products and a marketing strategy very adapted to the
Anglo-Saxon consumer. The United States and the United Kingdom are the
two main markets targeted by Chile and Australia.
In terms of pure growth, the case of New Zealand is emblematic with
exports multiplied by nearly 27 between 1995 and 2015. This performance is
all the more remarkable as the average price of wines exported is very high,
close to the prices for France. This shows that this wave of emergence induces
for the Old World a competition that is not only about volumes. Chardonnays
from New Zealand compete with Burgundy wines. This competition is on
price but more and more on quality. The example of the United States is also
symbolic of this quest for quality and high export prices. This country, and
especially California, was the first in the New World to choose constant inno-
vation and a constant search for quality.
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The two New World countries that appear slightly behind compared to the
others are Argentina and South Africa. In the case of Argentina, it is because
the growth of its exports is very low compared to other countries. It is compa-
rable with Germany, a country whose exports of wine are not a priority.
Macroeconomic problems in Argentina partly explain these performances.
Wine exports contracted considerably during the economic crises of the late
1990s and 2008. In this latter case, restrictions on trade and exchange rate
movements are the main reasons for the decline. South Africa is facing a more
structural problem. The export performances are good but remain globally
associated to rather low-end wines. The price of its exports is struggling to
increase and is similar to that of Spain despite lower exports of bulk wine. The
trap of low end combined with low added value is very present in this case too.
But the reason why the countries of the New World are particularly remark-
able regards their marketing strategies. The creation of strong brands is the
main asset of countries like the United States, Australia, and, to a lesser extent,
Chile, the three New World countries with the best export performances.
These brands capture the added value of marketing while capitalizing on very
large volumes and thus achieving massive economies of scale. These brands
are therefore a major vector for the competitiveness of these countries. The
emergence of major international brands is another indication, together with
the emergence of new players, of the entry of the globalization of the wine
sector into a phase of maturity.
Argentina and South Africa have so far failed to develop such brands. In
addition to quality and price, the sustainability of wine is likely to be a crucial
competitive variable that will matter in international trade statistics over time.
In this respect, the countries of the New World are clearly ahead of those of
the Old World.
1.1.3 Third Phase: The Emergence of a New New World
Other producing countries are gradually becoming part of world wine trade.
The countries around the Black Sea in particular, but also China, which
increased its exports sevenfold between 1995 and 2015, could be part of the
new wave of emergence, that of the “New New World”. China is probably the
best symbol of the changes at stake on the wine market, being the first coun-
try for red wine consumption in the world (the United States being the first
one when considering all types of wines).
On one side, the Old Producing countries still count on the global wine
market, but they are not dominating this market anymore. They are losing
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Introduction 7
shares and have to make their strategy evolve. On the other side, the big brands
are from the United States, Australia, and Chile (New World countries), and
compete with the historical champions from the Old World. International
trade follows these trends and continues to grow at a steady pace. Wine is also
facing a financial globalization by becoming a support for financial investments
or even speculation. Wine has finally become a global product since the 2000s.
1.2 G
lobalization of the Wine Market: Two
Models into Question
We often hear about the existence of two main models in the wine industry,
Old and New ones (appellation regimes vs. brands and varietals), which are
generally discussed and compared with respect to their efficiency. From the
three phases described above, we distinguish three groups according to the
moment they appeared in the wine industry:
–– Old/Traditional producing countries also called the Old World: the coun-
tries historically producing wine for centuries as France, Spain, and Italy,
plus Portugal, Germany, and Greece if considering the countries still hav-
ing a significant production (volume and value).
–– New producing countries (New World), which have emerged since the 1950s:
new producing countries as they began to produce wine far after the countries
from the Old World. They had previously no vines and started on the wine
market during the second half of the twentieth century. South Africa,
Argentina, Australia, the United States, and New Zealand belong to this group.
–– New New producing countries (New New World), which appeared on the
international wine market in the recent years (twenty-first century) but some-
times had been producing wine for a long time. They include China, India,
Brazil, and the countries around the Black Sea. For example, although in
Brazil there are a lot of vineyards, only some of them are used for creating
wine. The rest produce table grapes, but the share of the wine production is
increasing. China has been producing grape wine for a long time, but it wasn’t
until the late 1890s that the process of true grape winemaking became rele-
vant, and now there are hundreds of varietals produced all over the country.
The book deals with the main ones in each group, respectively France, Italy,
and Spain for the Old World; the United States, Australia, Argentina, Chile,
and South Africa for the New World; and China for the New New World.
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The way the terms Old/New World are commonly used is often close to
gross generalizations and also refers to differences in style in the specialized
press and media. The differences in Old World and New World wines are
described as coming from winemaking practices (tradition) and from the
effect of land and climate on the grapes, that is, the terroir. They can also
come from rules and regulations that dictate winemaking practices in many
Old World regions which could influence a wine’s style. Old World is often
associated with tradition and history, while New World invokes technology,
science, corporations, and marketing. The industrial organization does make
a difference as well. The actors involved in the industry, their role along the
production process, and the strategies to produce wine in the different coun-
tries can also be described as different ones. Considering the actors involved
in the chain, in the New wine countries most winemakers are processing and
selling wine but do not produce grapes, even if some of them now integrate
the grape production to control the supply part of production. The Old World
relies more on family estates producing grapes and wines with powerful inter-
mediate bodies to sell the wine on the market. To add value to the wine, they
are developing strategies which are often opposed. Old World countries are
used to rely on the denomination of origin and appellation regimes, while
New World countries focus on developing strong brands and “cepage” or vari-
etal wines. The protected designations of origin (PDO)/protected geographi-
cal indication (PGI) system has made the reputation of some famous wine
regions as Bordeaux and Burgundy in France with Grands Crus and Châteaux
and a strong reference to the terroir (soil, climate, and know-how).
But the existence of two different and really distinguishable models is very
often supposed and implicit. Reality is probably more complex with the coex-
istence of different strategies within the different producing countries. This is
one of the reasons why this book addresses several questions: What are the
models of industrial organization in the wine countries? Is it possible to
describe them? Are they really different? To go further into the globalization
at work for wine production, we intend to describe the industrial organization
of the main wine countries according to the international wine trade (France,
Italy, Spain, the United States, Australia, Argentina, Chile, South Africa, and
China) and analyze the status of these countries. In this competing frame-
work, we wonder about the different strategies and their performance.
Regarding the globalization process at work in the wine industry for wine
production, we wonder if the different countries will follow a general conver-
gence trend or if different models can and will coexist in the next years. The
perspective in this regard is the future challenges that producing countries will
face to choose the best strategy for their wine sectors, and this book tends to
highlight the key issues that have to be considered.
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Introduction 9
1.3 Outline
The book is divided into five main parts (apart from the introduction and the
conclusion).
Part I aims to identify the different models of wine production in the main
wine-producing countries presented above. Based on the description of the
industrial organization of each wine country, this part represents a first step to
better know and to provide an overall picture of the main features of the wine
industry in the nine main wine countries from different regions: the Old
World (France, Italy, Spain), the New World (the United States, Australia,
Argentina, Chile, South Africa), and the New New World (China). This
allows for reasonable comparisons across countries and to discuss the issue of
wine industry organization in a context of globalization. The focus is set on
the structural features, that is, long-term and not easily changeable character-
istics of the sector, rather than on short-term performances. In each chapter,
the reader will be able to find many different information on the structural
features of the grape-growing/wine-growing sector for the country including
geographical distribution of wine-growing farms in the country, proportion
of wine-growing farms on the overall agriculture, the average size of wine-
growing farms, farm size distribution (small vs. big farms), grape varieties,
appellation vs. generic grapes (where applicable), farming techniques (irri-
gated vs. rainfed, yields, etc.) and related production costs and revenues, land
tenure, family vs. corporate farms. The chapters also include information on
the structural features of the winemaking sector (average plant size and size
distribution of wineries), types of winemaking firms (on-farm winemakers,
wine co-operatives, industrial firms (and shares on total production)), and
types of products (appellation vs. generic wines, brand vs. appellation wines,
marketing strategies, labeling and communication to consumers, number of
brands, price positioning, and volume by segment). Then come the distribu-
tion and the relationships along the distribution chain with the contractual
arrangements along the chain, the role and relative weight of mass retail, spe-
cialized shops, HORECA, and exports as final destinations of the production.
What this first part overall shows is that, though some general differences in
the structures exist between the Old and the New Worlds, they are not always
clear-cut. In particular, the main structural diversities concern the wine farm
sizes, the degree of concentration of the sector, and the role of co-operatives.
But what also emerges is that different models of organization of the chain
coexist. Both winemaker-grape growers and winemakers purchasing grapes
exist everywhere, though accounting for different shares of the domestic
production. The degrees of concentration are quite diverse, but big firms
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relying on their brands exist in both the New and Old Worlds. The valoriza-
tion of specific local characteristics (the terroir and appellation typical model
of the Old World) is increasingly utilized in the New World, be it through
institutional arrangements or informally through the reputation and the
labels.
Part II focuses on the political processes structuring and influencing the
wine market worldwide, a perspective that shows that actors in the wine sec-
tor act and influence rules and standards. In a context of increasing competi-
tion between wines from different countries from all over the world, policies
governing the sector are no longer determined at the national level and have a
strong influence on the structure of wine industries. Therefore, the analysis
focuses here on wine regulations at European and international levels. After
the introduction (Chap. 11), Chap. 12 analyzes the international wine orga-
nizations and plurilateral agreements, and the dialectic between harmoniza-
tion and mutual recognition of standards. This chapter focuses on the role of
the international organizations such as the International Organisation of Vine
and Wine (OIV) and the World Wine Trade Group (WWTG). Through
detailed analysis, this section highlights their differences in philosophies and
goals of action. Then Chap. 13 focuses on the European wine policy, and its
regulations and strategies. It explores the history of the EU wine policies
through the analysis of budget expenditure that has characterized the public
interventions in 45 years (1970–2015). The objective is to analyze the main
drivers that have characterized the EU wine policy from the first CMO in
1962 until the last reform. The authors provide an in-depth analysis of the EU
wine policies identifying three main public policy orientations and strategies
that occurred in those years such as (1) “price and income support”, (2) “qual-
ity of wine”, and (3) “competitiveness”. Finally, Chap. 14 focuses on trade
barriers on wine markets as international wine trade, like any other trade, is
influenced by barriers which are relevant elements of the global wine market’s
institutional setting. Trade barriers result from customs tariffs or from policy
measures that can potentially have an economic effect on international trade
quantity and direction of flows. Wine exporters have actively negotiated pref-
erential trade agreements with importing countries to set lower barriers, and
the authors discuss their potential discriminatory effects. Considering the
current tensions in international relations, they identify a risk for the rising of
trade barriers in the next years and the need to empower an international
institution to harmonize the definitions and rules in wine production and
trade worldwide.
The next three parts are dedicated to the key variables to analyze industrial
organization in the wine sector and its performance: regulation, key actors
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Introduction 11
and the governance of the industries, strategies developed by the players as the
vertical integration process.
Part III explores the diversity of business models in the wine industry. It
focuses on different key actors in the wine value chain in the Old World:
grape and wine growers, wine co-operatives, and negociants/wine merchants.
The first chapter of this part (Chap. 15) sets a view of the differences observed
in the industrial organization of the wine sector from the actors’ point of view,
including their strategies. In the Old World, wine industries are more frag-
mented and atomized. So this chapter focuses on the diversity of grape and
wine-growing farms and the variability of their performance, and on the
downstream actors as negociants and wine co-operatives. The author shows
that it is not all about the size but also on the strategies they develop to better
face market demand. Then, the authors of Chap. 16 go deeper into the analy-
sis of vineyard and wineries organization. They use a transaction cost frame-
work to examine the organization of vineyards and winemaking, focusing on
three important organizational features of worldwide production: limited
contracting, small vineyards producing high-quality grapes, and the separa-
tion of wineries from vineyards in the nineteenth century. Then, the part
focuses on particular and powerful actors of the Old wine industries: wine
co-operatives and negociants with French case studies. Chapter 17 presents
the French wine co-operatives and their specific status making them different
from wineries in the New World. The authors mainly analyze how the strate-
gies they set to survive on the market (mergers) impact the territorial anchor-
ing which was constitutive of their existence at the beginning. Then Chap. 18
introduces the negociants and la Place de Bordeaux, embedded in a complex
set of social relationships and governed by various institutions. The author
explores this so particular model in the wine sector and shows the diversity
and shifting power balance between negociants and winegrowers.
Part IV deals with an important driver of the strategies set by the actors
whatever the model and the wine country they are coming from. The chal-
lenge of vertical integration is particularly strong in the wine sector because of
the interdependence of grape growing and winemaking. Wine companies are
facing a process of concentration linked to the search for economies of scale,
investment capacities, and bargaining power vis-à-vis retailers. In this context,
creating value through downstream integration of production can be difficult
for firms, whose financial and human resources are generally limited. This
part examines this issue from different points of view according to the actors
(wine estates but also wine co-operatives and international companies) and
according to the scale (a regional one, concerning Burgundy and Bordeaux
wines, but also regional, national, or international). After an introducing
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chapter (Chap. 19) dedicated to a literature overview on this issue in the wine
sector, Chap. 20 provides a cluster analysis to identify the main differences
among Burgundy wine estates in terms of winemaking outsourcing vs. verti-
cal integration. The authors show that winemaking integration has a positive
effect on wine estates’ profitability in Burgundy. Then, Chap. 21 focuses on
two levels of vertical integration strategies, first in wine estates and then in
wine co-operatives, to explore wine companies’ performance in relation to
their vertical integration level. The results show that such strategies appear as
an efficient way to create value for producers (private cellars and co-operatives
members) but that it should not stop at the bulk-wine production stage. The
next chapter (Chap. 22) analyzes the evolution and the current structure of
the Prosecco Superiore industry at the PDO level, giving qualitative and
quantitative evidence of the role of the different models of supply chain. The
authors highlight the interaction connecting the different supply chains via
the intermediate markets of grape and wine. The intense interrelation among
different operators seems to be one of the key factors of enduring success.
Finally, Chap. 23 goes up to the international level considering the backward
vertical strategies in leading companies, especially in the New World.
The last part finally gives clues to analyze the performance and the effi-
ciency of the wine industries.
Part V addresses the question of the efficiency of the wine industry. Are the
strategies developed in the different countries successful or not? To answer
that question, this part takes different angles to deal with the results the wine
industry got from their different strategies. It first focuses on international
trade and the characteristics of the wine industries coming back to their sta-
tus: Old vs. New World and appellations vs. brands with a simple indication
of origin (Chap. 24). The next chapter (Chap. 25) also considers the appella-
tions vs. brand debate, but from a microeconomic point of view. Indeed, the
results of wine producers have to be considered at firm level, trying to find out
the best way for them to manage reputation, and therefore their sales, either
individually through a brand or collectively through an appellation. This idea
is to overcome the implicit idea widely retained, about the supremacy of
branding in the New World. It starts from the collective reputation model,
analyzes its effects as well as its failures, to show that such a categorization
might be simplistic. Both coexist more and more frequently on the same label.
Then, we chose to present diametrically opposed national case studies of eco-
nomic success in the wine sector to show that different and opposed strategies
can be successful (Chaps. 26 and 27). Indeed, Chile and Switzerland have
both enjoyed great success in the wine industry, but by following completely
different trajectories. These chapters perfectly illustrate the cautious approach
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Introduction 13
one must take when addressing questions of efficiency, performance, and eco-
nomic models. The major conclusion to be learnt from this part and probably
from the whole book is that there is not one single road to success when talk-
ing about industrial organization in the wine sector but that different strate-
gies are possible according to the micro- and macroeconomic characteristics
governing the country. Different “models” exist and go against the idea of the
homogenization of the wine industry worldwide.
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Part I
Structure of the Wine Sectors
Worldwide
Coord. by Alessandro Corsi
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2
The French Wine Industry
and Linda Jiao
2.1 Introduction
France is a historical wine-producing country, one of the first to have emerged
on the wine market, together with Italy and Spain. These three countries
define the basis of what is traditionally called the “Old World” in the wine
world, including Portugal, Germany and Greece. Rich of a millenary history,
wine is inseparable from the culture, heritage, terroirs and economy of France.
The wine and spirit sector keeps its position as a large surplus in the French
trade balance (11.51 billion Euros, 8.24 only for the wine in 2017) behind
aeronautics (17.4 billion Euros) and above perfumes and cosmetics (10.6 bil-
lion Euros) (FranceAgriMer 2018a, b). The wine sector is therefore crucial for
the French economy, representing the largest surplus in the French agri-food
trade balance. It is known as a major asset for France as it generates not only
J.-M. Cardebat
L. Jiao
e-mail: linda.jiao@u-bordeaux.fr

https://doi.org/10.1007/978-3-319-98633-3_2
mmorag@uchile.cl
growth and employment, often in rural areas where jobs are rare (Porter and
Takeuchi 2013), but the wine industry also participates in the planning of the
territory with an essential landscape function and is, in addition, a well-
known supplier of local tax revenues (Cardebat 2017).
France is still one the first wine country in the world for the volumes pro-
duced, for the value of exports, for consumption and for the diversity of prod-
ucts. The French wine industry is therefore at a turning point in its history.
The evolution of food consumption and lifestyle, the rising of public health
and environmental concerns, climate change, but also the success of New
Producing Countries and the reform of the Common Market Organization in
Europe represent so many challenges for the wine industry in France. To suc-
ceed in meeting these challenges for the future, all the actors of the industry
have to engage and bring together their efforts for a renewed dynamics based
on all its successful assets like terroir, innovation, know-how, PDOs (Protected
Designations of Origin) and its worldwide reputation.
This chapter seeks to describe the French wine industry and its actors fol-
lowing the process to obtain the final product (grape growing, wine process-
ing and then distribution and commercialization). It begins with a presentation
of the wine industry according to its place in the international trade. It then
provides details of the winegrowing and winemaking sectors, before present-
ing the distribution channels. The final sections speculate on how that struc-
ture may change in the decades to come and provide a conclusion.
2.2 T
he French Wine Industry’s State
and Current Position in the Wine World
About 70% of the French wine production covers 83% of the wine consump-
tion in France and the imported wines the rest. The national market is defi-
nitely the main one for French wines for years as only 30% in volumes are
exported.
2.2.1 France in the International Wine Trade
After a crisis in 2008, which had seen the collapse of the international market,
growth came back in 2010 (+14% in volume and +17% in value) for the
French wine industry. In the recent years, on one hand, French wine imports
have decreased in 2017 after 3 years of increase (+5% in 2016, +12% in 2015,
+23% in 2014) and represents 7.6 billion hectoliters in 2017 (OIV 2018). In
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The French Wine Industry 19
value, the imports register a new record with 810 billion Euros (+10%) in
2017. The main part of the wine imported is bulk wine (80%), mainly cor-
responding to wine without any geographic indication and not mentioning
the cepage or the variety. This is the sign of the structural deficit of the French
wine industry in low-price wines that the low harvest successions are unable
to fill quantitatively. The search for bulk wines at moderate prices leads
importers to import wine from Spain for the main part of the volumes
imported.
On the other hand, wine trade is largely dominated by Spain, Italy and
France, which account for 55% of world market volume in 2017. In value,
France and Italy continue to dominate the market with 30% and 19%, respec-
tively, of wine exports in the world (OIV 2018). French wine exports repre-
sent 30% of the volumes produced in France and present a steady rise in
2017, staying at a very high level, even being a historical result if considered
together with the spirits sector (FranceAgriMer 2018a, b): +5% in volumes
(15.4 billion hectoliters) and +9% in value (8.89 billion Euros) (Fig. 2.1).
Fifty-four percent of the wines are exported to a European country. The main
part (around 50% in volumes) of the wine exported is still bottled wine,
mainly to Germany, China, the United Kingdom and the United States. Since
2005, although France has lost its status as the world’s largest exporter by
volume, it remains largely ahead in value (9.05 billion Euros in 2017—
FranceAgriMer 2018a, b). The prices of the wines exported by France are
among the highest in the world, reflecting a positioning on well-valued prod-
ucts and even better and better-valued products considering the evolution of
the average prices for 15 years (+9%), especially for PDO wines (+20%).
These good results were partly pushed by specific plans set by the French gov-
ernment (for the 2008–2013 period, e.g., the plan aimed at increasing the
volumes exported on the markets and reinforcing the image and the quality of
French wines to increase the value of the products).
It is a little bit different for organic wines which are more exported than
noncertified ones (46% of organic wines exported in 2016) (Agence BIO
Stats 2017).
The link between wine production and the terroir is worldwide recognized,
as AOC (Appellation d’Origine Contrôlée, French for PDO) wines account for
39% of French exported volumes and 51% of exported value. PGI (Protected
Geographical Indication) wines account for 26% in volume and 10% in value.
Champagne wines account for only 7% of exported volume, but it generates
29% of total value. The total AOC wines (still wines plus Champagne)
account for 46% of export volume and generate 80% of export value.
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10000
Exports
9000
Imports
8000
7000
Value (million €)
6000
5000
4000
3000
2000
1000
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
18
16
14
Volume (million hL)
12
10
8
6
4
Exports
2
Imports
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Fig. 2.1 French wine imports and exports (in volume and value). (Source: OIV stats,
http://www.oiv.int/fr/bases-de-donnees-et-statistiques)
2.2.2 French Wine Production and Consumption
After years of growth, during the nineteenth century, the area of the French
vineyard reached its peak, with 2.465 million ha, in the middle of the 1870s.
After this date and because of the Phylloxera crisis, the French vineyard has
experienced a long period of deceleration. Initially slow, the decline a ccelerates
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after World War II, and the surface was divided by two after a century. In the
first half of the twentieth century, the production remained relatively stable
thanks to an increase in yields. Then, from 1950 to 1990, it increased. Finally,
since 1990, it has dropped considerably to fall below the most productive
periods of the beginning of the century. Between 2000 and 2011, the vine-
yard lost 13% of its area. The crisis in the viticultural sector in the 2000s led
to major uprooting (together with EU policy). Since the end of the EU pro-
gram to regulate the wine production potential (2011/2012 campaign), the
rate of reduction of the vineyard in France has slowed significantly.1 The latest
available data showed a tendency toward stabilization of the overall area in
France around 785,000 ha (OIV 2018), second position right after Spain,
representing about 10% of the vines in the world.
France has been historically one of the leaders of wine production around
the world. It represents 10% of the vineyards worldwide right after Spain and
China and 15% of the wine production (36.7 million hl in 2017—OIV
(2018)). However, considering the volumes, wine production in France has
fallen sharply in 2017 to the point that—according to OIV—it will be a his-
torically low year but not representative because of extreme climatic events.
The production fell by 19% in volume and reached 36.7 million hectoliters.
After the decline following the 2008/2009 economic crisis, world wine
consumption has found a positive direction. This upward trend has been
observed since 2014. While the United States confirm their position as the
world’s largest consuming country since 2011 (32.6 million hl), France is the
second one (27 million hl in 2017, 11%), followed by Italy, Germany and
China (OIV 2018). The decline in consumption in the historically consum-
ing countries—France, Italy and Spain—seems stabilized while consumption
in the United States, China and Australia continues to grow. Historically, the
French wine market is supported by domestic consumption: France is still the
leading wine-consuming country in Europe above Italy, Portugal and Spain,
“absorbing” 14% of the wine produced worldwide. France is the first market
for French wines (70% of the volumes produced in France, 83% of the wines
purchased in France). The imported wines represent 17% of French
consumption.
But wine consumption in France has decreased for the last 30 years: whereas
in 1975 it was 100 liters per inhabitant per year, it has dropped to 42 liters per
inhabitant per year. According to FranceAgriMer (2014), however, there is a
decline in nonconsumers of wine for the first time since 1995. The occasional
consumption (1–2 once a week or more rarely) takes precedence over regular
The annual growth of plantations is limited to 1% in Europe (OIV).

1
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70000
60000
50000
40000
1000hl
30000
20000
10000
0
Wine production in France Wine Consumption in France
Fig. 2.2 Wine production and consumption in France. (Source: OIV stats, http://www.
oiv.int/fr/bases-de-donnees-et-statistiques)
consumption (everyday or almost everyday). As for regular consumers, whose

share decreases since 1980, they share stabilized since 2015 (16%). Nevertheless
the consumption and the production of wine have been experiencing a long-
term decline (since the 1970s) in France (Fig. 2.2).
According to the evolution of its position on wine international markets,
France has to face a big challenge. Stuck up over the past ten years between
the drop in consumption and the triumphant arrival of the New World wines
on the market, French wine producers, as well as other actors in the French
wine industry, are actually confronted with an unprecedented commercial
context that seems to jeopardize their production practices inherited from the
past. While some of them take the opportunity to transform their grape pro-
duction, make wine and develop marketing practices, many others suffer from
the effects of what they perceive as a radical questioning about the way they
are making wine. In all cases, they have to perform in order to maintain their
competitiveness and to benefit from the favorable global context of increasing
demand. In this framework, the complexity of the industrial organization, the
high fragmentation of the production and the length of the supply chain con-
stitute real challenges to overcome for the French wine industry.
2.3 The Grape-Growing Sector in France

France is historically one of the leaders of wine production around the world
and one of the biggest producers in volume on a surface equivalent to only
3% of the French agricultural area. It represents 85,000 farms dedicated to
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grape production (20% of the total number of farms), the main part of them
(99%) being devoted to wine production.
2.3.1 Ten French Wine Regions
The French wine industry is located in about ten specialized basins. These ter-
ritories have a strong identity, and each one has its own policy to manage the
local industry. For each wine production region, there is an Interprofessional
Wine Council mainly in charge of marketing and communication. The mar-
keting and communication department is dedicated to promote the wines in
France and abroad. It designs and diffuses the messages to help wine market-
ing. Especially, it helps in training prescribers (wine merchants, restaurateurs,
importers, etc.) and provides the information consumers need. It is also in
charge of the registration of transaction contracts, such as the transaction
contracts of bulk wine between on-farm winemaking properties and
negociants.
They are different according to the type of wine produced and the market-
ing methods, as well as the size of the farms. Vines are cultivated in different
regions, but always under temperate climates, which favor the growth of
plants. Together with temperate climates, a large diversity of grape varieties
and soils are also favorable to the cultivation of vines on the whole territory.
Ten main wine regions have been defined in France, from north to south, or
colder to warmer: Alsace-East, Champagne, Burgundy-Beaujolais-Savoie-Jura
for continental climate; Loire Valley, Aquitaine, Charentes-Cognac, South-
West for the Atlantic climate; Languedoc-Roussillon, Rhone Valley-Provence
and Corsica are warmer, covered by Mediterranean climate. Table 2.1 presents
the surface, the number and the average size of grape-growing farms for each
region and shows that Languedoc-Roussillon, Provence-Alpes-Côte d’Azur
and Aquitaine are the main wine regions according to the surface planted with
vines and the number of grape-growing farms. The average surface of grape-
growing farms in France stands at 9.16 hectares. There are large disparities
among wine regions in terms of average size: from the smallest – 2.44 hectares
on average for Champagne to the largest – 25.38 hectares for Corsica. Note
that three quarter of the vineyards are cultivated by one quarter of the farms
with surfaces exceeding 12 hectares on average. The erosion of surfaces men-
tioned before has affected most basins (HCCA 2017): Languedoc-Roussillon
(−19%), Corsica (−14%), Loire Valley Center (−11%), Rhône Valley and
Provence (−11%), Bordeaux-Bergerac (−9%), Burgundy-Beaujolais-Savoie-
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Table 2.1 Surface, number and average size of grape-growing farms by region (in
2010) (The three top regions, with more than 100,000 ha are in bold)
Grape- Number of Average size of
growing grape-growing grape-growing
Wine regions surface (ha) farms farms (ha)
Languedoc-Roussillon 201,500 17,423 11.56
Provence-Alpes-Côte d’Azur 148,500 12,924 11.49
Aquitaine 137,600 9533 14.4
Charentes-Cognac 79,900 6047 13.21
Pays de la Loire-Centre 62,100 6289 9.87
Bourgogne-Beaujolais-Savoie-Jura 53,100 8368 6.34
Sud-Ouest 40,400 6037 6.69
Champagne 33,400 13,647 2.44
Alsace-Est 16,200 4462 3.63
Corsica 6600 260,000 25.38
France 779,300 84,990 9.16
Source: Agreste Primeur (2011) and FranceAgriMer (2014)
Jura (−9%) and South-West (−8%) Conversely, certain basins gained sur-
faces: Champagne (+ 10%), Alsace (+ 4%) and Charentes-Cognac (+ 4%).
These are high-valuated wines.
The French vineyard is mainly composed of vines of more than ten years
old. The choice for grapes varieties depends on wine production regions. Since
the first implantation of the vine in the south of France, and its development
in all Gaul by the Romans, the wine growers looked for the plants most
adapted to the climate and to the ground to obtain always a better wine.
Ranked by planting surface (FranceAgriMer 2014), the top 10 most planted
red grape varieties are Merlot, Grenache, Syrah, Cabernet Sauvignon,
Carignan, Cabernet Franc, Pinot Noir, Gamay, Cinsaut and Meunier
(Table 2.2). For the whites, the top 10 are Ugni Blanc, Chardonnay, Sauvignon
Blanc, Semillon, Melon, Chenin, Colombard, Muscat Petit Grain, Viognier
and Grenache Blanc. Red varieties represent 72% of the vine area in 2014,
and the share of international variety is increasing (42% in 2014).
2.3.2 A Production Segmented by AOCs and PGIs
French wines have an ancient and large reputation based on geographic indi-
cations, PDO, still called AOC in France, and PGI. AOC wines are produced
in limited areas and subject to strict and precise regulations defined according
to “local, loyal and consistent practices”. AOC wines are identified with cul-
tural products from a specific region, with its landscapes, history, winemakers
and know-how. AOC wines have been very successful in France for a long
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Table 2.2 Areas according to the varietals (%)

Variety Surface in %
Merlot 14
Grenache 11
Syrah 8
Cabernet Sauvignon 6
Carignan 5
Cabernet Franc 4
Pinot 4
Gamay 3
Ugni blanc 10
Chardonnay 6
Sauvignon 4
Source: CNIV/FranceAgriMer (2016)
time. The main part of the production comes from AOC wines, that is, 47%
in volume (376 different AOCs in 2017) and from PGI wines, that is, 28%
in volume (75 different PGIs in 2017) (GraphAgri 2017), the rest being spir-
its or wines without any mention of origin. Each AOC or PGI is ruled by an
organization called “a defense and management organization” (ODG). It is
set up at the initiative of a group of producers and/or processors providing the
same production who join forces within a structure to take the step of recog-
nizing a sign of quality, from the elaboration of the specifications to the pro-
tection and the valorization of the product. The ODG develops and contributes
to the implementation of the product specifications (specificity of the prod-
uct, production area for AOC, PDO and PGI products whose characteristics
are linked to a geographical location), the rules for wine production, wine
processing and possibly packaging and labeling. It designates an organization,
approved at national level by INAO,2 to carry out the control of the specifica-
tions and gives its opinion on the control or inspection plan drawn up with
the inspection body. It participates in the defense and protection of the name
of the AOC or PGI, promotes the product and the terroir and develops
actions and the economic knowledge of the sector (providing information on
volumes, number of operators by category, means of production, product
development and outlets).
Ninety percent of the specialized grape farms in France are producing wine
under AOC or PGI systems, giving evidence to the importance of mentioning
the origin to value the production of this country (Agreste Primeur 2011).
2
INAO is an organization belonging to the French Ministry of Agriculture. It guarantees and protects the
denominations of origin, supervises modifications and examines the applications for recognition under
official geographical indication.
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More than two third of the grape-growing farms are devoted to produce AOC
wines, and this part covers around 62% of the vine areas. Alsace-East,
Champagne and the Burgundy regions only produce wine under appellation
systems (AOC). Great part of the production in Loire Valley (75%), Rhone
Valley (67%) and Corsica (54%) is also produced in AOC systems. The pro-
duction of South-West is more diversified with 41% with AOC (but nearly
100% for the Bordeaux wine region). In Languedoc-Roussillon, the produc-
tion is mainly produced under PGI systems (59%), with only 26% in
AOC. Besides, the regions in the south, Loire Valley, South-West, Languedoc-
Roussillon, Rhone Valley and Corsica are characterized by mixed farms—they
produce both AOC and other wines. Charentes-Cognac is specialized in
grapes for spirits. The majority of wine farms producing AOC wines are big-
ger than the other ones and the wine farms producing PGI wines are rather
small or middle farms compared to AOC ones (Table 2.3).
Producing under appellation system is synonymous of production con-
straints, the main ones being the limited wine yield per hectare together with
a list of authorized varieties (only Vitis vinifera for AOCs). Each AOC/IGP
area establishes, in contact with INAO, its production conditions. Besides,
from an economic point of view, an early assessment of harvest volumes at
regional level facilitates the management of the volumes available on the wine
market. Some authors also claim for a link between yield limitation and better
quality of wines (concentration), but the literature is still too weak on this
topic to conclude. In France, vineyards are cultivated by rain-fed systems.
Vine irrigation is forbidden but French regulations allow, under certain con-
ditions, exceptional irrigation of vines. The irrigation is strictly forbidden for
Table 2.3 Economic size according to the type of wine

Percentage of farms
AOC PGI AOC and PGI Other
Economic size wines wines wines wines Total
Small farms 27 49 18 47 33
(SGM<25,000€)
Middle farms 29 35 42 16 29
(25,000€ < SGM and >
10,000€)
Big farms 44 16 40 37 38
(SGM > 100,000€)
Number of farms 46,600 12,100 3100 6700 68,500
Source: Agreste Primeur (2011)
Note 1: That the economic size of farms is determined thanks to the concept of
standard gross margin (SGM) used in Farm Data Accountancy Network (FADN) at
European level and expressed of ESU (economic size unit). The value of one ESU is
defined as a fixed amount of euros of farm gross margin (FGM)
Note 2: The percentages have to be added up in columns
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all wines between 15 August and the harvest. In the case of PGI and wines
without any geographical indication, the irrigation is possible after the harvest
until 15 August or the ripening (the moment when the color of the grape ber-
ries is changing). As for the AOC, by default, the irrigation of vines suitable
for the production is forbidden from 1 May up to the harvest and authorized
after the harvest until 1 May. However, the irrigation of vines can be autho-
rized, exceptionally, maximum from 15 June at the earliest until 15 August at
the latest. This finally explains the low rate of irrigated vineyards according to
the importance of the appellation regime in France. These conditions on
grape and wine production make a real difference to access natural resources
and for production costs/economies of scale.
2.3.3 Characteristics of Grape-Growing Farms
Beyond the size of the farms, the 85,000 French grape farms can be character-
ized from three important variables: the labor force, the age of the grape grow-
ers and the men/women ratio.
Wine farms are characterized by the use of a large wage labor force. Farm
specialized in grape-growing use, on average, the equivalent of 1.9 full-time
workers seasonal including workers (+0.4 up to other farms). This is why
French viticulture is recognized as a sector supplying jobs in the countryside.
Nonfamily permanent employees provide 30% of the workload and 18% for
seasonal workers. Seasonal work is mainly present in Champagne and
Burgundy-Beaujolais-Savoie-Jura because the grape growers harvest by hand
more often (Agreste Primeur 2011).
In 2010 (RGA3 2010), 6 out of 10 grape growers are 50 years old and over.
Among the specialized farm owners of 50 years or older, the majority (60%)
does not know who will take over after them or even think the farm will dis-
appear. This could result in a potential loss of nearly 40% of French vineyards.
This is a particularly big concern in Gironde, where the share of over 50s
among wine growers continues to grow (54%). The demographic succession
seems to be less and less easy. Fewer and fewer are generational farms when
grape farms used to be family farms (they are dominant in France), and it is
more and more difficult to transmit a grape-growing farm.
3
The RGA, or General Agricultural Census, compiles statistics on the number of farms, on the technical
and economic orientations, on the agricultural surfaces used, the productions and surfaces concerned, the
areas still grassed, and the main grasslands. The RGA (or RA) is organized every 10 to 12 years. The first
census took place in 1998, then in 2000 and finally in 2010. They constitute the main data source from
the Ministry of Agriculture.
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In 2010, 17% of owners are under 40 years of age, compared to 25% in

2000. Almost 61,000 hectares of vines are expected to be transmitted before
2020 (concerning 3000 grape growers over 50 years). For some of them the
question of succession begins to arise. The first trends in the census confirm
the results of previous surveys, namely, a deterioration in the response rates
for the future of the farm but also the correlation between the size of the com-
pany and its eventual transmission. In fact, for one in three, the question no
longer arises. He already knows his future successor (when it was 50% of
them in 2000). Four times out of five, the buyer is part of the family. The farm
is smaller (7 ha), when the transmission takes place outside the family because
the future owner already owns another exploitation. Thirty thousand hectares
are under uncertainty in this region. In 2010, for a future retiree on ten, the
question seems resolved: the exploitation will disappear. Either it will be
spread in different other companies or the agricultural use of this lands will be
lost. For the others, the question has no answer, or they have not yet asked it,
or they do not know.
The grape-growing profession is more feminized than in other agricultural
professions, as 27% of farm managers are women (23%). This is even more
true when we look at the older grape growers (37%) as they often take over
from their husbands when they retire.
2.3.4 The Dynamics of Organic Farming
We can observe an interesting dynamics around environmental-friendly and

sustainable ones in the French industry in the recent years (organic, biody-
namic and natural wines). Official data are available only for organic wines,
benefiting from the creation of a dedicated observatory. The organic vineyard
has tripled in 10 years. In 2017, the organic viticultural sector in France com-
prises 5835 grape-growing farms and 78,665 hectares of organically grown
vines, representing nearly 10% of the national vineyard in hectares (Table 2.4).
The regions which are the most dynamic ones in terms of both volume and
number of organic farms are (1) Languedoc-Roussillon as the leading area in
France, (2) Provence-Alpes-Côte d’Azur and (3) Aquitaine with Bordeaux
wines. Conversions to organic farming experienced a very strong increase
between 2008 and 2012 (the conversion lasts three years) and slow down a
little bit since then (Fig. 2.3 and Table 2.4).
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80000
70000
60000
50000
Surface (ha)
40000
30000
20000
10000
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Year 3 Year 1 Year 2 Organic surface (certified)
Fig. 2.3 Evolution of organic surfaces in France (ha). (Source: Agence BIO 2017)
2.4 The Winemaking Sector in France

Even if there are many ways for producing wine, the French models for wine
production mainly rely on grape growers who are also winemakers, whether
in a private cellar or in holding the shares of a co-operative processing and
selling the wine. Then, in some French regions, negociants and brokers are
very important intermediate actors in the industry.
2.4.1 Wine Production: Yield, Colors and AOC Wines
In France, the average yield is around 50 hl/ha, close to the European one
(between 55 and 60 hL/ha depending on the vintage), but this number varies
from year to year. For quality and AOC wines, the maximum authorized yield
varies between 40 and 60 hl/ha. During the period 2003–2013, the annual
yield of AOC was comprised between 42 hl/ha (2013) and 55.8 hl/ha (2005).
For less qualified wines, the yield varies from 60 to 80 hl/ha. During
2003–2013, the annual yield of wines other than AOC (Cognac excluded)
varied from 63 hl/ha in 2003, 2007 and 2011 to 79.5 in 2004 (FranceAgriMer
2014).4 There are strong yield differentials between regions, and on average
See tables in page 38 and 39 of FranceAgriMer 2014.

4
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Table 2.4 Repartition of organic farms and surfaces by region
30
Number of Organic surfaces Organic surfaces (ha, conversion) Total (ha, certified

farms (ha, certified) 2017 + conversion) Percentage of organic
Evol. Evol. Year Year Year Evol. Evol. surface in the whole
Regions 2017 /16 2017 /16 1 2 3 Total /16 2017 /16 vineyard
Languedoc- 1466 13.6% 19,512 4% 3698 1757 1136 6591 67% 26,102 15% 11.2%
Roussillon
Provence-Alpes- 994 8.9% 14,088 3% 1635 996 734 3366 30% 17,454 8% 19.1%
Côte d’Azur
Aquitaine 826 12.2% 9097 4% 1299 735 533 2568 60% 11,665 13% 8.2%
Rhône-Alpes 615 6.8% 4641 6% 388 319 179 885 7% 5527 6% 11.4%
A. Alonso Ugaglia et al.
Midi-Pyrénées 333 8.1% 2071 3% 266 198 103 568 43% 2638 10% 7.0%
Bourgogne 322 6.6% 2054 2% 173 469 200 842 40% 2896 10% 8.8%
Alsace 309 6.9% 2203 1% 160 89 99 348 56% 2551 6% 15.9%
Pays de la Loire 264 15.8% 2374 8% 385 442 146 973 39% 3346 15% 10.5%
Centre 213 7.6% 2421 1% 224 105 81 410 24% 2831 4% 13.3%
Val-de-Loire
Champagne- 158 19.7% 411 15% 128 85 42 256 45% 667 25% 2.1%
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Ardenne
Poitou- 116 20.8% 946 5% 62 153 53 268 18% 1213 8% 1.4%
Charentes
Franche-Comté 74 8.8% 361 11% 16 56 18 90 −1% 452 9% 18.5%
Corsica 59 5.4% 675 13% 151 153 33 337 5% 1012 10% 15.1%
Auvergne 27 35% 75 4% 22 20 8 50 85% 125 26% 11.5%
Lorraine 25 38.9% 55 6% 43 7 1 52 285% 107 63% 31.5%
Picardie 16 6.7% 36 50% 5 1 2 9 −51% 45 5% 1.8%
Limousin 10 25% 29 160% 4 – 1 5 17% 34 117% 16.6%
Ile-de-France 4 −20% 1 42% – – – – −100% 1 37% 2.6%
Haute- 2 100% c – c c c c – c – –
Normandie
(continued)
Table 2.4 (continued)
Number of Organic surfaces Organic surfaces (ha, conversion) Total (ha, certified

farms (ha, certified) 2017 + conversion) Percentage of organic
Evol. Evol. Year Year Year Evol. Evol. surface in the whole
Regions 2017 /16 2017 /16 1 2 3 Total /16 2017 /16 vineyard
Bretagne 1 −50% c – c c c c – c – –
Basse- 1 0% c – c c c c – c – –
Normandie
Nord-Pas-de- – – – – – – – – – – – –
Calais
Outre-Mer – – – – – – – – – – – –
Total France 5835 10.9% 61,048 4% 8660 5588 3369 17,617 46% 78,665 11% 10%
Source: Agence BIO (2017)
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The French Wine Industry
31
they are low compared to competing producing countries in the New World.
It impacts production costs compared to countries benefiting from favorable
production factors such as natural and human resources less costly. In addi-
tion, for many years, there has been a very significant increase in the mortality
of vines, which weakens the yields and the productivity of the French vine-
yards, despite the notable efforts of restructuring and renovating the vine-
yards, not to mention the National Research Programs on the decline of
vineyards in general and on trunk diseases in particular.
In 2010, farms produced 45% of red wines, a production that dominates
in France, slightly higher than white wines (43%), far ahead from rosé wines
(12%). A large proportion of white wines are detained to spirits (eaux de vie).
Figure 2.4 demonstrates the evolution of wine harvest in France by wine
region and color.
10,000
9,000
8,000
7,000
6,000
1000hl
5,000
4,000
3,000
2,000
1,000
Red Rosé White White for Cognac or Armagnac
Fig. 2.4 Wine harvest in France by region and color (2015). (Source: DGDDI-CVI Harvest
2005–2015)
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White wine
Rosé wine
Red wine
0 20 40 60 80 100
Volume (%)
AOP PGI no GI Eaux-de-vie
Fig. 2.5 AOC and PGI and wine color (2010). (Source: Agreste Primeur 2011)
AOC and PGI wines value French production since the majority of red and
rosé wines are produced under AOC (60%) (Fig. 2.5).
Before 2012, it was not possible to produce “organic wine” but only “wine
produced from organic grapes”. A European regulation (2012) designed new
production specifications defining what an organic wine is and how to pro-
duce it (n°203/2012). According to a study by AND-I, commissioned by
Agence BIO, nearly 1.82 million hectoliters of organic wines have been sold
in 2016. PDOs accounted for 68% of volumes of French organic wines mar-
keted in 2015 and PGIs 25%.
2.4.2 Winemakers
In France, grape-growing farms can deal with their grape harvest in three dif-
ferent wine processing modes:
(i) Using their harvest to make their own wine (on-farm winemakers) in a
fully integrated way (from grape production to wine commercialization).
In this case, the estates are managing both the grape growing and the
wine processing.
(ii) Being co-operative members and delivering the harvest to winemaking
co-operatives that process and sell wine on their behalf. There is no con-
tract to sell the grapes between co-operative members and wine co-
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operatives (in this sense, it is different from Champagne where the

“Maisons de Champagne” buy fresh grapes from grape growers and then
process the wine). Grapes and wines remain the property of wine growers
until they are sold.
(iii) Selling their fresh grape harvest (rare).
The majority of the grape harvest is processed by on-farm winemakers,

representing 55% of the total French harvest, also called private cellars. About
37% of the total grape production is processed by winemaking co-operatives
(48% of French wines in volume excluding Cognac in 2016 (FranceAgriMer
2018a, b)). The remaining 8% of the total grape harvest is sold as fresh grapes,
grape juices or musts (Fig. 2.6).
In 2010, 53% of the grape-growing farms sent their grapes (partially or
totally) to a wine co-operative (39% deliver their whole production to a wine
co-operative). Wine co-operatives are typical French structures in the wine
industry with a strong link to the terroir and origin of grapes. Their weight
remains important in France (606 winemaking co-operatives in 2014). Over
310,000 hectares of vines are cultivated by co-operatives members (and some-
times by co-operatives themselves when they own a small vineyard). The aver-
age surface of vines of co-operative members is around six hectares (against
nine hectares for the vertically integrated grape and winegrowing farms).
Wine co-operatives directly owned by the grape growers on the principle “one
man, one voice”. They bring together more than 100,000 people, 85,000
associated co-operative partners and 17,353 employees. They achieve a turn-
over of 5.6 billion Euros and 18,317,022 hL (2014), which accounts for 48%
of the total wine production in France (except Charentes-Cognac). More than
50% of the wine co-operatives producing still wines are located in the South-
37%
Wine co-operative
Sold as fresh grapes, juice or must

55%
Private cellar
8%
Fig. 2.6 Winemaking processing (volume, 2010). (Source: Agreste Primeur 2011)
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Table 2.5 Four main French wine co-operatives

Turnover 2013 (million Euros) Wine region
Val d’Orbieu 274 Languedoc-Roussillon
CV Nicolas Feuillatte 210 Champagne
Alliance Champagne 105 Champagne
UDVCR Cellier des Dauphins 100 Rhône
East of France (Languedoc, Valley of the Rhone and Provence). The biggest
ones are located in the same region, but also in Champagne (Table 2.5).
Twenty percent of the wine produced in co-operatives is organic wine
(FranceAgriMer 2014), representing 27% of the organic wine processed in
France. According to the 2015 notifications, 203 wine co-operatives produced
wine from organic grapes, up from 70 in 2009 (Agence BIO). They are mainly
mixed co-operatives producing both a range of organic and non-organic
wines. Nevertheless, to date, wine co-operatives are small businesses or SMEs.
Only one has a turnover exceeding 300 million Euros. While size is not in
itself a guarantee of success, we must distinguish between what is relevant for
the optimization of winemaking tools and what is the case with regard to
packaging and marketing. As with other sectors of activity, the rapproche-
ments between co-operatives continue. The number of wine co-operatives has
decreased by 40% in the last 20 years.
2.5 Distribution Channels

2.5.1 T
he Main Distribution Channels Used
by Winemakers
Once the wine has been processed, a wine farm (private cellar) or a wine co-
operative can sell it through different distribution channels: negociants (also
called wine merchants), producer groups, restaurants, wine stores, supermar-
kets and hypermarkets or directly to consumers (on-farm sale, online sale). An
important share of the volumes goes through negociants (64% of the vol-
umes), often via brokers (Fig. 2.7).
For organic wines, sales channels are highly diversified. Of the volumes,
73% are marketed by wine growers and 27% are by wine co-operatives. More
than half of the volumes marketed by co-operatives go to negociants. In 2015,
41% of sales of organic wines (in value) concerned direct sales and 23% in
wine stores dedicated to organic wines. Direct selling is therefore the main
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3% 1%
4%
Négoce
Direct to consumer
28%
Wine store
Hypermarkets/supermarkets
64% Other-1%
Fig. 2.7 On-farm winemakers’ distribution channels by percentage of volume. (Source:

RGA 2010)
channel for organic wines. Forty-six percent of organic wines (volume) have
been sold abroad in 2015 (Europe, especially Germany). Fifteen percent of
the volumes of organic wines sold in France in 2015 were sold in restaurants
or catering services. In 2014, nearly one out of two restaurants had organic
wine on their menu (compared with nearly two fifth in 2011). The restaurant
owners who have organic wines offered, on average, five different references
(CNIV—Panel CHD FACTS). According to Agence BIO, the value of pur-
chases of organic wines by households in France was estimated around 792
million Euros in 2016 (+ 17% between 2015 and 2016). Purchases of organic
wines more than tripled between 2005 and 2016. In 2015, organic wine
accounted for 12% in value of purchases of organic products by households.
The wine can be sold in bulk, in bottle, or in bag-in-box. Figure 2.8 repre-
sents the different distribution channels in France and their share in volumes
up to the type of packaging used at the moment of the sale. Bottled wine
stands for the majority of direct sales. The main part of the wine sold to the
negociants is bulk wine, which they bottle right after and before selling it. On
the contrary, when they are selling the wine directly to the consumers, the
winemakers bottle and label the main part of their wines.
While the organic wine distribution system appears to be diversified and
mobilizes all the classic channels, direct sales and export appear to be of par-
ticular relevance. Organic wine growers have to face extra production costs,
explained mainly by higher labor costs and partly justified by the higher qual-
ity of wines, and typically it results in higher prices for the final consumer. In
this case, direct sales could be seen the most remunerative as a producer’s
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67% Bulk wine

Negociants
33% Bottles
69%
30% 14% Bulk wine

All winemakers (on-farm
wineries and wine co- Direct sales
operatives)
86% Bottles
1% 27% Bulk wine

Other
73% Bottles
Fig. 2.8 Distribution channels (percentage of volume). (Source: Author’s calculation

based on RGA 2010)
margins are not squeezed in intermediate transactions. A closer relation

between a producer and a consumer also adds value to the product: consum-
ers perceive bio wine primarily as a wine, a cultural product which witnesses
the diversity of terroirs (Bouzdine-Chameeva et al. 2013). It explains why the
first distribution channel in value is direct sales (41% in value, 28% in vol-
ume), followed by organic stores (23% of the market value, 18% in volumes),
then the HORECA and finally the large retailers (super and hypermarkets)
even if they keep 27% of the volumes (Vignerons bio Nouvelle-Aquitaine
2017).
2.5.2 N
egociants as Major Actors in the French
Distribution Channels
Negociants play important roles along the wine industry chain from produc-
tion through wine-maturation and commercialization. FranceAgriMer esti-
mates the number of 1500 wine negociants in France even if it is difficult to
identify them according to the diversity of their status and activities. They can
buy fresh grapes or grape musts and process their wine (as in the Champagne
region) and/or buy the wine in bulk or in bottles (selected via brokers). Then
they bottle it if needed and process the distribution step to the final consumer.
Growing grapes is the only part they do not manage or rarely. The negociants
have a particularly strong position in the Bordeaux wine region. We can con-
sider three types of negociants in the French wine sector:
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(i) Negociants who own as well wine estates, or the contrary: wine growers
developing a négoce activity. In this case, the negociants can be the pro-
ducer and distributor of their own wine. They are often big groups and
their activities are highly vertically integrated. Such a negociant can also
carry out the activities of the two next ones.
(ii) Negociants who buy fresh grapes or grape musts from wine growers for
making their own wine. They are in charge of the winemaking, aging,
assembling and bottling, and then distributing the wine with their own
labels. Such a negociant can also carry out the activities of the next one.
(iii) Negociants only involved in the distribution process. They select wines
produced by on-farm winemakers, in bulk or in bottle. If bulk, the nego-
ciants can undertake the bottling and labeling in accordance with the
regulation at final destination.
In France, the Castel Group, Bordeaux-based international recognized

name, dominates the French wine market (Table 2.6). It generates around
12% of the market in volume. Castel Group owns almost 1400 hectares of
vineyards in France and another 1600 hectares in Africa. In France, Castel
owns 21 winemaking estates in the Bordeaux region and Provence. Their
brands occupy the top 3 in the ranking: Roche Mazet, Vieux Papes and Ormes
de Cambras, which take a market share of over 2% in volume, followed by La
Villageoise, Cambras, Baron de Lestac, Blaissac, Malesan and Boulaouane
that stand at leading places in the French market. Les Grands Chais de France
takes the second place in the French market with about 3% of the market in
volume. Les Grands Chais de France, based at Petersbach in Alsace, is one of
the top French wholesale wine and spirits merchants. Its brand JP Chenet,
distributed in over 160 countries, claims the title of best-selling French wine
in the world. JP Chenet occupies the top market share (0.4% in volume) in
the French market as well. Other leading brands of still light grape wine are
Cellier des Dauphins (0.5% of the market in volume) that belongs to Union
des Vignerons des Côtes du Rhône, Billette and Listel from Domaines Listel,
Table 2.6 Turnover of the three main downstream companies—still wine

Turnover 2013 Estimated number of bottles
Company (million Euros) (million bottles)
Castel frères group 743 640
Johanes Boubées 743 400
(Carrefour group)
Grands Chais de France 693 500
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Cramoisay of Maison Noémie Vernaux and Malesan from William Pitters

International (MarketLine, Euromonitor and official company websites).
Winemaking firms and negociants are often put in touch thanks to bro-
kers. Wine broker is a profession poorly known to the consumers but well
known by experts. They have a great expertise upstream of the distribution
channel (quantity produced, quality of the wine, prices on the market) allow-
ing them to connect wine producers with negociants or wine importers. They
also develop transaction activities from négoce to négoce. In this sense, they
really play an intermediate role in the wine industry. They make each party
aware of the conditions of the other. They advise the parties and attempt to
reconcile their possibly divergent interests. Then they charge commissions for
each transaction. In Bordeaux, they are part of 75% of the registered transac-
tions (100% for the Grands Crus). In France, they are in charge of 80% of the
AOC production, less for generic wines. Hypermarkets and supermarkets
often have their own teams, operating in purchasing centers to deal with wine
purchases.
2.5.3 Buying Wine
French consumers buy most of their wine in super and hypermarkets (70% of
wine purchases, 9.5 million hl) (FranceAgriMer 2018a, b). Then come hard
discount chains (14%), local wine stores (7%), wine stores (3%), direct sales
(3%) and sales online (1%) in 2016 (volume) (FranceAgrimer 2017). France
counts around 1700 wine stores, mostly owned by 3 chains: Nicolas (450),
Inter Caves (224) and Cavavin (120). Gourmet stores and delicatessen remain
residual. In terms of price (CNIV/FranceAgriMer 2016) in 2014:
• 29% of purchases of still wines were made at a price lower than 1.49€ per
bottle and 7% at a higher price than 5€ per bottle.
• 52% of wines without any geographic indication from France, 55% of
non-EU foreign wines (other origins) and 79% of wines without any geo-
graphic indication from Europe were purchased at a lower price than 1.49€
per bottle.
• 51% of purchases of AOC wines were made at less than 3€ per bottle and
16% of them at more than 5€ per bottle.
Even if red wines are still the top wines for consumption, the French con-
sumers are more and more interested in rosé wines at the expense of red wines.
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2.5.3.1 Mass Distribution (Super and Hypermarkets)
Hypermarkets and supermarkets play leading role in wine distribution. The

wine market in these channels represents 4.6 billion Euros per year, or 3% of
total store sales (2017). This weight goes up to 4.5% during the period of
wine fairs (at least once or twice a year). For several years, wines have been
valued by improving the quality of the offer in super and hypermarkets (also
true for the other distribution channels). In three years, the number of still
wine references has increased in hypermarkets (+39.5) despite a decline in the
average linear. In these channels, still wine sales were −1.5% in volume and
−0.1% in value compared to 2015. The average selling price (4.49€ per liter)
rose by 2.9% compared to 2015. Supermarkets recorded 21.2 additional ref-
erences of still wines over the last three years. Compared to 2015, sales of still
wines in super and hypermarkets decreased by 1.3% in volume and increased
by 1% in value, with an average price up by 3.6%, that is, 4.26€ per liter
(FranceAgriMer 2017). Growth is better in local wine stores and drive-thru
services, although market shares are much more confidential.
The volumes are divided between red wines (54% in value), rosé wines
(26%) and white wines (20%) in 2016 according to the same source.
Compared to the previous years, the decline in sales continues in volume and
in value for red wines (−18% in volume over a ten years period). The market
share of foreign wines in the total stills marketed in GD is up, and now stands
at 7% in volume and 4% in value. In terms of formats, sales of still wine in
bag-in-box continue their growth in supermarkets. These sales accounted for
35% of total sales of still wines in supermarkets in 2014 (CNIV/FranceAgriMer
2016).
2.5.3.2 Focus on Cybercommerce
Cybercommerce doesn’t represent a lot in volume, but a huge progression in

the recent years. In less than 20 years, wine sales via cybercommerce have
become really significant. With 647 players (2/3 dedicated only to wine and
spirits), the e-commerce of wines generated an estimated turnover of 430 mil-
lion Euros in France in 2014. French people are more and more willing to
purchase wine online, according to the SOWINE/SSI barometer. We can dis-
tinguish different type of cyber players (Table 2.7). Positioned on the diversity
of the offer more than local wine merchants, the pioneers face several chal-
lenges: recruiting and engaging customers, including technological develop-
ments and financing wine storage (expensive). The private sales model is
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Table 2.7 Cybercommerce in the French wine industry

Type of
Cybercommerce Examples Number Turnover
Pioneers or “pure Millesima, Wine and Co, 216 180 million
players” Vinatis websites Euros
Private sales Vente-privee.com, 21 players 75–90 million
1jour1vin.com Euros
Drive thru 13 chains 64 million Euros
Others Distribution (web) 161 players 10–20 million
Cross-canal wine stores 203 Euros
Box, subscriptions websites 30 million Euros
20 players 5–8 million
Euros
Source: FranceAgriMer (2017)
driven by the advantages offered to consumers (discounts, famous wine

brands, use of luxury codes, etc.). It requires high-tech logistics and specific
management of the wine list. Drive-thru services from super and hypermar-
kets still have a big potential for further development. The type of wine pur-
chased via cybercommerce depends on the player concerned, but it mainly
concerns bottled red wine (75cL) priced between 10 and 25 Euros.
2.6 C
onclusion and Synthesis: What
About the Performance?
The organization of the French wine industry is characterized by the complex-
ity and diversification among wine production regions concerning the actors
and their relationship along the distribution chain.
The majority of the grape harvest is vinified by on-farm winemakers, about
one third of the production is vinified in wine co-operatives and the selling of
fresh harvest takes only a small part of the market. This share varies depending
on the region (Exhibit 2.1). The intermediate bodies play important roles in
French wine industry. Negociants claim their leadership along the chain, and
they can interfere at different steps (rarely for grape production, sometimes to
process wine, very often to sell the wine). In addition, the transactions between
grape or wine producers and negociants are often linked by brokers. Around
60–70% of the production is commercialized by negociants in the main wine
regions. Supermarkets and hypermarkets are dominant channels for the dis-
tribution, and the on-trade (restaurants, bars, hotels, etc.) takes about one
third of the market. Red wines are the most sold in terms of both volume and
value. Whatever the region, wine co-operatives and negociants are the two
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arms of the French wine industry. They join in industry groups, either region-
ally for AOC and PGI wines or nationally for wines with no geographical
indication. They fund efforts to promote their wines and monitor markets,
finance research and development initiatives (FranceAgriMer 2018a, b). We
present in Exhibit 2.1 the main actors and the way they are organized for four
representative wine regions in France: Bordeaux, Burgundy, Champagne and
Languedoc-Roussillon (Exhibit 2.1).
Exhibit 2.1 Focus on Four Wine Regions and Their Distribution

Channels (Bordeaux, Burgundy, Champagne and
Languedoc-Roussillon)
Bordeaux Burgundy
Nearly 80% of the harvest is 55% of the harvest is vinified by on-farm
processed by on-farm winemakers. It is less than in the past
winemakers. The transaction of due to the development of selling fresh
fresh grapes or grape musts is harvest grapes or musts (16% of the
negligible. In addition, this crop in 2010 against 10% in 2000), while
region is characterized by the the proportion of harvest processed by
dynamic and the power of wine co-operative remains stable (29%).
negociants. Over 70% of the The sale of fresh harvest grapes, which
Bordeaux wine production is can meet the cash requirements, is now
commercialized by negociants practiced by 47% of farms, which is
(51% for bulk wine and 49% for rather rare in the other regions. This is
bottled wine), representing 83% also explained by the increase of sales
of the wine estates. Brokers are contracts for the production of sparkling
important intermediaries in the wines. Negociants and wholesalers
Bordeaux wine region. 80% of remain the main destinations (59%).
the transactions between Still, half of the Burgundian wine
owner-seller and trader-buyer growers are managing sales through
involve brokers. direct selling (40%).
Champagne Languedoc-Roussillon
On-farm winemakers process less In this region, 47% of the farms are small
than one third of the harvest estates, which bring the wine
(30%), similar for wine co-operatives to play an important role
co-operatives (28%), while in winemaking. Nine out of ten
selling fresh grapes or grape operators send all or part of their
musts takes the most important harvest in wine co-operatives—over
part (42%). Different from other 70% of the total harvest. But big
regions, most of the wine properties often process all or almost
produced is sold by direct their whole harvest themselves. Two
channels or exported abroad, third of the wine production is
which presents over 80% of the commercialized via negociants. The
total transaction volume. direct sales represent the remaining one
Negociants or wholesalers third of the total sales.
distribute the rest.
Source: Authors from the information published on the ODG websites and
Agreste (2011a, b, 2012, 2013)
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The production and consumption of wine are inseparable from its circula-
tion and its international trade. We therefore end this chapter providing a
synthesis of France’s different strengths and weaknesses in relation to its per-
formance on the wine market. Some analyses of the performance of the French
wine industry have been published and nearly come to the same conclusions
(Porter and Takeuchi 2013; HCCA 2017; CNIV/FranceAgriMer 2016)
(Exhibit 2.2).
Strengths of the French Wine Industry
• The wine sector is crucial for the French economy as it represents France’s
leading sector of the agri-food balance, knowing that public subsidies rep-
resent only a small part of the turnover of the sector. Besides, it is worth
noted that the Champagne contributes a tiny part in terms of volume but
a significant share in this value. It is as well a job-creating sector in rural
areas, while unemployment in France is still a major concern.
• At the international level, France is a highly reputed historical wine coun-
try. It is still the first wine exporter in the world (in value) and about 30%
of the production goes abroad. The European Union is the first destina-
tion, and the US and Asian market are the main ones out of Europe.
Among the exports, AOP wines account for nearly half of the volume and
generate 80% of the value.
• The country is also one of the top producers for wine production (in vol-
ume), right after Spain. It offers a high diversity of products. The agrocli-
matic diversity ensures a high diversity in the combination of climates,
grape varieties and soils.
• France, as an Old Wine country, benefits from the know-how of the grape
and wine growers, who know the terroir very well. Its image of this indus-
try is strongly linked to “tradition” and to the high quality of the wine
produced. The terroir reference must not only be seen as an old traditional
notion and policy, invented to protect the production in the Old World,
but as a model which determines the life and the future of many producers
and people in this industry. It is a collective and long-term construction,
authentic by the respect it shows for tradition and local usages.
• With over 300 of AOCs in France, the term “appellation” dominates in
grape growing as well as in winemaking. The vineyards devoted to produce
AOC wines cover about two third of the areas under vines, and about half
of the total wine production is produced in an AOC context. The corollary
is that wine yield in the French appellation regime is restricted and s ubmitted
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to regulations. For regions such as Alsace-Est, Champagne, Burgundy and

Aquitaine, nearly 100% of their production are AOP wines. In terms of
economic size, the majority of AOP winegrowing farms or winemaking
plants are relatively big compared to others. This segmentation of the mar-
ket by AOCs and PGIs is an important asset especially since the appella-
tions are well valued, especially for exports.
• It is possible to observe the progressive constitution of powerful private
groups or wine co-operatives able to compete at the international level.
Some co-operatives, grouped together in co-operative unions are as strong
as some negociants. If the appellation regimes dominate the French wine
industry, it benefits as well from strong brands integrated in international
powerful groups, especially for Cognac (spirits) and Champagne (spar-
kling). The reputation of the French wine industry also relies on the success
of top-end estates and the Grands Crus all over the world.
Weaknesses of the French Wine Industry
• However, the domestic wine production and consumption have been expe-
riencing a long-term decline. Facing the challenges from New World wines,
French producers need to maintain their competitiveness.
• Some estates are facing economic difficulties due to high production costs
for some wines and commercial issues (CNIV/FranceAgriMer 2016).
• Few big French importers and wholesalers focused on emerging markets
for wine consumption.
• Although leading brands account for an important market share and have
advantages in marketing and communication, the perception of appella-
tion prevails in the French market.
• No French brands in the top 10 of international brands but numerous
regions, appellations, farms, brands and intermediaries, unclear for the
consumers.
• An involvement for innovation and in research programs hardly recognized
by the markets.
Starting from this observation, the stakes for the French wine industry are
numerous. One of the main ones is to better adapt the offer to the demand, in
particular for the low-end wines. The growth of growing segments is a way to
offset the decline in demand. The French sector must also face another major
challenge: maintaining its export position and position itself on the best mar-
kets. This is an important outlet for French wines, particularly in terms of
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value, especially when the domestic consumption is declining. The positioning

of French wines in the domestic market has also to be the focus of attention,
because it remains the major outlet (65% of volumes produced). In France,
75% of wines purchased in 2014 were less than 3€ per bottle. The French sec-
tor will therefore have to opt for profitable strategic routes for all its stakehold-
ers. Whenever possible, it is more on valorizing wines with high yields, thanks
to an important marketing support. It can also be to value wines produced
with limited yields. Or it may be the choice to produce wines at low cost, so
high yields, but this strategy is complex in France in the current context.
Exhibit 2.2 Porter and Takeuchi’s Analysis About the Performance of

the French Wine Industry (2013)
“France’s competitiveness has also suffered as a result of changes in the global

wine market. Historic price pressure as a result of overcapacity is going away as
demand is growing stronger than production capacity. At the same time wine is
moving from a regional towards a global product as international trade
increases, leading to new competitive pressures for wine growers. France has
taken this trend seriously as wine is a key national export for the economy and a
key employer for the work force. Overall, performance of the French wine
cluster over the past decade is mixed. France wine has a strong position in terms
of export values and volumes driven by a higher percentage of exports to
non-EU countries. France also has maintained a strong price premium on a per
liter basis versus other countries. Despite these positive aspects, the cluster
cannot ignore the fact that export growth has not kept pace with other
wine-producing countries both in terms of volume and value. France faces
particularly strong competition from “New World” producers outside of Europe.
The question then begs, how can the French wine cluster remain competitive?
The competing clusters in “new world” geographies like Australia, Chile and
the United States have gained global export share by adopting the same
strategies that made France so successful historically. IFCs that contributed to
France’s strong performance are now protecting uncompetitive producers and
stifling innovation. Producers have been less able or willing to adapt to a
changing marketplace, whether due to lack of scale and expertise or an
unwillingness to alter owner and worker lifestyles. Going forward, ensuring
that national industry organizations and other IFCs drive improvements in
productivity will be critical in helping French firms remain globally competitive”.
Source: Porter and Takeuchi (2013)
References
Agreste. 2011a. Premières tendances, Agreste Données Viticulture Languedoc-
Roussillon, Recensement agricole 2010, novembre 2011, 4p.
———. 2011b. La viticulture en Bourgogne : progression des surfaces et de l’emploi sala-
rié, Agreste Bourgogne, n°125, décembre 2011, 6p.
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———. 2012. La Champagne viticole a maintenu son activité, Agreste Champagne-

Ardenne, Recensement agricole 2010, n°6, septembre 2012, 4p.
———. 2013. Caves particulières, Agreste Données Languedoc-Roussillon,
Recensement agricole 2010, septembre 2013, 6p.
Agreste Primeur. 2011. Strong geographical identities, Recensement Agricole 2010,
Wine industry, no. 271, November 2011, 4p.
Bouzdine-Chameeva, T., Briois C. Rames, and P. Barbe. 2013. Les circuits de distri-
bution des vins bio en France. Economia Agroalimentaire 15 (3): 103–123.
Cardebat, J.M. 2017. Économie du vin. Paris: La Découverte.
CNIV/FranceAgriMer. 2016. Analyse des filières vitivinicoles des principaux pays
producteurs dans le monde, France, Décembre 2016, 12p.
FranceAgriMer. 2014. Les chiffres de la filière viti-vinicole 2003/2013, FranceAgriMer,
novembre 2014, 207p.
———. 2017. Les synthèses de FranceAgriMer – Vins, Les achats et les ventes de vin
tranquilles – Bilan 2016, 77p.
———. 2018a. Wine industry, FranceAgriMer Facts sheets, February 2018, 2p.
———. 2018b. Les synthèses de FranceAgriMer – Vins, Vins et spiritueux – Commerce
extérieur – Bilan 2017, 28p.
GraphAgri. 2017. Signes de qualité en Europe. Agreste Alimentation: 106–109.
HCCA. 2017. La filière viti-vinicole française – consolider les acquis et préaprer
l’avenir, Section économique et financière, Décembre 2017, 30p.
OIV. 2018. Conjoncture vitivinicole mondiale 2017.
Porter M., and H. Takeuchi. 2013. The French Wine Cluster, Microeconomics of
Competitiveness, Harvard Business School, Winter 2013, 33p.
RGA. 2010. Recensement général agricole, Agreste. France: Ministère de l’Agriculture.
Vignerons Bio Nouvelle-Aquitaine. 2017. Le marché des vins bio. 4p.
mmorag@uchile.cl
3
The Italian Wine Industry
Alessandro Corsi, Simonetta Mazzarino,
and Eugenio Pomarici
3.1 Introduction
Wine production is deeply rooted in the Italian tradition, since viticulture was
practiced even before Roman times, and thereafter almost everywhere in the
country. Nowadays, Italy is among the main world wine producers, and the
Italian wine industry leads the national agribusiness; indeed, although the
wine industry is third in the ranking of turnover in the agro-food sector, wine
is the true food icon of Made in Italy and the largest contributor to Italian
agro-food exports. In particular, viticulture is an important part of Italian
agriculture. Vineyards for wine production covered 622,000 ha in 2016, that
is, about 5% of the total utilized agricultural area (UAA), but viticulture
accounted for 10.2% of the value of agricultural production. With an
A. Corsi (*)
S. Mazzarino
Department of Economics and Statistics “Cognetti de Martiis”,
e-mail: simonetta.mazzarino@unito.it
E. Pomarici
Department of Land, Environment, Agriculture and Forestry,
University of Padua, Padua, Italy
e-mail: eugenio.pomarici@unipd.it

https://doi.org/10.1007/978-3-319-98633-3_3
mmorag@uchile.cl
48 A. Corsi et al.
e stimated 50.9 million hl in 2016 (Anderson et al. 2017), Italy was the first
producer in the world in quantitative terms (about 19% of the world produc-
tion), although France (which alternates with Italy in the first ranking) out-
performs Italy in value terms (Anderson et al. 2017). The Italian wine industry,
because of its size and historical evolution, comprises a large number of opera-
tors; most of them are professional producers linked to distribution channels,
but many only produce for self-consumption or as a hobby. According to the
last Agricultural Census, there were 369,000 farms growing wine grapes, but
considering only the professional operators, grape production is carried out in
about 197,000 farms. Wine-making is carried out in about 55,000 grape-
processing plants and bottling in about 8000 plants. These technical produc-
tion units are linked in various models of production organization, and the
Italian wine industry is organized into both integrated and de-integrated sup-
ply chains, the latter formed by operators specialized in one or two phases of
the wine supply chain.
To describe this complex production system, the chapter is organized as fol-
lows. Section 3.2 presents the main features of grape production in Italy.
Section 3.3 analyzes the organization of wine production, identifies the tech-
nical units involved and their different forms of integration in the supply
chains, and discusses the supply concentration and the different typical mar-
keting models of firms. Section 3.4 shows where Italian wine is delivered.
Section 3.5 analyzes the relationships and the flows along the chain, presenting
the contracts and the main aspects of the sector governance. Finally, Sect. 3.6
contains some final comments on the structure of the Italian wine industry.
3.2 S
tructural Features of the Wine-Growing
Sector
3.2.1 R
elevance and Distribution of Viticulture and Farm
Size
After a long evolution over 70 years, characterized by a reduction of the total

area under vine, the disappearance of mixed cropping in favor of specialized
vineyards, and a dramatic reduction in the number of grape-growing farms
(Corsi et al. 2018), viticulture is still widespread throughout Italy, although
with specific territorial differences. Disregarding farms growing table grapes,
in 2010 there were still 369,000 farms growing wine grapes, accounting for
23% of the total number of farms (ISTAT) and covering 626,000 ha (4.8%
of total UAA) (Table 3.1). More recent data gathered by a survey carried out
mmorag@uchile.cl
The Italian Wine Industry 49
Table 3.1 Number of farms producing wine grapes and vine-bearing area
Number of farmsa Area (hectares)
Vineyards Vineyards Vineyards
for PDO for other for PDO Vineyards for
Territory wines wines Total wines other wines Total
Italy 127,970 292,382 388,881 320,859 304,841 625,700
North-West 20,704 19,425 35,174 61,331 10,075 71,406
North-East 46,189 50,286 83,393 116,250 52,099 168,349
Center 17,400 59,850 71,993 65,923 39,553 105,476
South 32,116 113,966 139,346 54,983 102,952 157,935
Islands 8561 48,855 58,975 22,372 100,161 122,534
Source: ISTAT, Agricultural Census (2010)
a
In the Agricultural Census, the reported number of farms refers to farms where
there are predominantly or exclusively vineyards of the mentioned kind.
Consequently the overall number of farms is not the sum of partial values. In
addition, the overall number of farms also includes farms where there are
predominantly or exclusively table grape vineyards and vine nurseries
in 2013 by ISTAT further reduce the number of farms with wine vineyards to
just under 310,500 units, while the overall vineyard area estimated for 2017
rises to around 652,000 hectares (ISMEA 2018). These figures consider all
farms growing table grapes, including hobby farmers and production for
self-consumption.
Notwithstanding the wide diffusion of viticulture, geographical differences
are important, both in quantitative and qualitative terms. Consideration of
the large-scale territorial division among North-East (NE), North-West
(NW), Center, South, and Islands (NUTS1 level in the EU classification)
(Fig. 3.1) shows that a large proportion of wine-growing farms are located in
the South (36%), while NE (21%) and NW (9%) are less important, and the
Center and Islands have 19% and 15%, respectively. However, in terms of
vine-bearing area, the share of the South is much smaller (25%), and the share
of NE (27%) and of the Islands (20%) is much larger. The differences are
more striking in terms of quality, since the South only accounts for 19% of
farms producing only Protected Designation of Origin (PDO) wines, while
the NE has the largest share of such farms (41%) (Mazzarino and Corsi 2015).
Although the issue of “true quality” is much debated, some areas enjoy par-
ticular prestige; this is the case of Tuscany, Piedmont, and Veneto for red
wines, and Trentino-Alto Adige, Veneto, and Friuli for white ones. Nevertheless,
the wines really appreciated by national and international critics come nowa-
days from vineyards in every part of Italy.
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50 A. Corsi et al.
Trentino A-A
Friuli V-G
NORTH-WEST Veneto
NORTH-EAST
Piedmont
Emilia-Romagna
Tuscany
CENTRE
SOUTH Apulia
ISLANDS
Sicily
Fig. 3.1 Geographical divisions and main wine-producing Regions
Wine-growing farms in Italy are predominantly small businesses, mostly

family-operated. The average size of vineyards is 1.7 ha, and two thirds of
wine farms have less than 1 ha of wine grape area, and in the Center and in
the South, this share is even larger. Only 7% have over 5 ha of vineyard and
2.6% over 10 ha. The shares of large vineyards are larger in NW, NE, and
Islands, where about 10% of wine farms have more than 5 ha of vineyard. The
deep historical roots of wine-growing in Italy, along with the general pre-
dominance of small and very small farms, are at the origin of this structure.
However, while small farms are predominant in number, in terms of area,
medium and large farms obviously dominate. Therefore, while only 5% of
wine farms are over 5 ha, they account for 54% of wine grape area, with
higher shares in NE (60%) and Center (63%). Farms larger than 10 ha of
vineyard account for 35% of wine grape area, with a particularly high share in
the Center (49.3%). Considering that 35% of the total area under vine repre-
sents more than 200,000 hectares, Italian viticulture includes a share of rela-
tively large farms whose overall area is larger than the total area under vine in
the USA or in Australia, to cite only the biggest competitors in the New
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World. Nevertheless, 12% of wine grape area in Italy consists of farms with
less than 1 ha of vineyard, and this share is larger in the South (18%) and in
the Center (15%).
3.2.2 Technical Aspects and Land Tenure
On the technical side, an important characteristic of Italian viticulture is

the large number of varieties that are grown. According to the national
register of vine varieties (MIPAAF 2018), more than 500 wine varieties
are grown; most of them are strictly native varieties, not the “interna-
tional” ones. Though many of them cover small surfaces, even the most
widespread variety (Sangiovese) covers a limited share of the total wine
grape area (11.4%); all other varieties are below 6% of total area, and the
first ten varieties only cover 46% of total wine area1 (Mazzarino and Corsi
2015). The largest part of vineyards (except for table grapes) are rain-fed,
but 21% of the total vine-bearing area is irrigated (Agricultural Census
2010), mostly in the South. Wine-growing is mostly concentrated in the
hills (58%), especially in the NW (Piedmont) and the Center (Tuscany),
where grape-growing areas are almost totally in the hills. Important parts
of the vine area are located on the plains of Emilia-Romagna, Veneto, and
the South. Altimetry creates technical differences, since mechanization,
especially for harvesting, is difficult on the hills, while it is easier in the
plains. This partly explains the differences in the orientation of farms,
with the large-scale low-cost wines predominantly produced in the plains,
while farms on the hills aim at low-yield, higher-quality grapes, compen-
sating with higher prices for the lower yields and the higher costs. Also the
grape-growing agronomic techniques may differ substantially throughout
the peninsula because of the different climate conditions, creating diverse
landscapes.
Almost all (99%) of wine grape farms are family businesses. Few farms are
owned by companies (0.6%), even fewer by cooperatives. In terms of area, the
share of family farms is lower but still over 91%, as compared to 6.1% for
stock companies. Again, the Center is somewhat different, and the shares are
77.1% and 18.7%, respectively.
1
The most important varieties (over 10,000 ha) are Sangiovese, Trebbiano, Montepulciano, Merlot,
Catarratto Bianco, Barbera, Glera, Moscato Bianco, Pinot Grigio, Calabrese (Nero d’Avola), different
types of Lambrusco, Cabernet Sauvignon, Chardonnay, Primitivo, and Negro Amaro.
mmorag@uchile.cl
52 A. Corsi et al.
3.2.3 Farmers Classification
The population of grape-growing farms is very heterogeneous in terms of the

economic nature of their activity and downward integration. According to
AGEA2 2012 data, only 197,000 (slightly more than half of the total) engage
in a professional business, cropping 550,000 ha (almost 90% of total area
under vine). Therefore, the Italian grape-growing sector comprises a large
fringe of farms (about 170,000) carrying out viticulture for hobby purposes
or self-consumption on small plots or with abandoned vineyards.
It is possible to identify three categories among the professional farmers
growing grapes, according to the destination of their production: farmers
equipped with wine-making facilities (27%), farmers selling grapes in the
intermediate market (31%), and farmers belonging to cooperatives (42%).
These categories are important for the analysis of the flows in the chain
(Sect. 3.5.1).
3.3 S
tructural Features of the Wine-Making
Sector
3.3.1 Supply Size and Composition
Wine production in volume is variable from year to year due to the climatic
conditions that obviously affect vineyard yields. According to ISTAT, it
amounts to between 40 and 45 million hectoliters (Table 3.2).
A typical characteristic of the Italian wine supply is the number and impor-
tance of wines with recognized geographical origins. Such wines are produced
under the EU rules on Protected Geographical Indication (PGI) and PDO. In
particular, within the European category of PDO wines, in Italy there are dif-
ferent appellation levels, characterized by increasing and more stringent
requirements.3 The Italian appellation system, modeled on the French one,
2
These figures concerning the professional grape growers come from the AGEA database. AGEA is the
Italian agency in charge of the payments of CAP subsidies. According to Reg. 1308/2013, all professional
wine grape farmers and all wine-makers have to submit each year a compulsory statement on the quantity
of grapes or wines that they produce.
3
According to Reg. (CE) 1308/2013 and Reg. (CE) 607/2009, EU wines can be marketed as:
• Varietal wines and generic wines, produced with no special restriction on where vineyards, wine-
making, and bottling plants are located (in Italy the maximum yield is 50 t/ha). The name of the wine
grape variety may be mentioned if at least 85% of the product has been made from that variety.
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Table 3.2 Italian wine production by type (hl, %)
2010 2011 2012 2013 2014 2015 2016
Generic wines 14,996,551 11,978,563 9,692,983 11,917,442 9,916,247 14,257,985 16,761,884
PGI wines 13,953,194 13,592,224 12,546,429 15,787,053 13,451,854 15,423,067 15,345,459
PDO wines 15,743,432 15,060,866 16,025,898 17,339,626 16,373,330 18,954,431 19,508,118
Overall 44,693,177 40,631,653 38,265,310 45,044,121 39,741,431 48,638,483 51,615,461
Generic wines 33.6 29.5 25.3 26.5 25.0 29.3 32.5
PGI wines 31.2 33.5 32.8 35.0 33.8 31.7 29.7
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PDO wines 35.2 37.1 41.9 38.5 41.2 39.0 37.8
Overall 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Source: ISTAT, available at ww.agri.istat.it
The Italian Wine Industry
53
54 A. Corsi et al.
started in 1963, but the number of appellations has rapidly and steadily
increased since the 1990s. In 2016, the vine area for PGI wines was 149,009 ha,
and the corresponding figure for PDO wines was 359,962 ha. Together, PGI
and PDO represented 79% of the total vine-bearing area (ISMEA,
RETEVINO 2018).
Considering wine production in terms of quality, in the period 2012–2016,
Italian wine production in volume (Table 3.2) was almost evenly divided
among generic wines (27–28%), PGI wines (32–33%), and PDO wines
(39–40%). In terms of value, the shares were obviously different and were
estimated (for 2016) at 24%, 18%, and 58%, respectively (QUALIVITA
2018).4 Wine production is differentiated by type across areas: PDO wines
predominate in NW, NE, and Center, NE dominates the production of GI
wines, and South has the large majority of generic wines. Production of vari-
etal wines is modest, about half a million hl.
Because of changing consumption patterns and the growing production of
sparkling wines (based on white varieties), since the 2011 harvest, white wines
have dominated the overall Italian production, accounting in the 2014–2016
period for about 53–54% (ISTAT 2017) depending on the year. In fact, a
distribution of this type is more typical of the northern regions, while in the
South, Tuscany and Piedmont red wines (including rosé wines) predominate
over white ones.
• Wines with a recognized geographical origin, according to the categories Protected Geographical
Indication (PGI) and Protected Designation of Origin (PDO). A geographical indication and a desig-
nation of origin are names of a region, a specific place, or, in exceptional and duly justifiable cases, a
country, used to describe a wine whose quality depends (strictly in PDO case) on the delimited area
corresponding to the name, where grapes are cropped and processed according to a recognized set of
rules (product specification). In PDO wine production, only varieties belonging to Vitis vinifera are
admitted, and all grapes must be cropped in the delimited area; in PGI production, also crosses
between Vitis vinifera and other species of the genus Vitis are admitted, and at least 85% of grapes must
be cropped in the delimited area.
In Italy PGI wines are presented as IGTs, because “Indicazione Geografica Tipica” is the officially
recognized traditional term corresponding to the EU category PGI, and PDO wines are presented as
DOC and DOCG wines, because Denominazione di Origine Controllata (Controlled Designation of
Origin) and Denominazione d’Origine Controllata e Garantita (Controlled and Guaranteed Designation
of Origin) are the officially recognized traditional terms corresponding to the EU category PDO (L.
238/2016). Wines belonging to the DOC and DOCG categories are assumed to be of higher value than
IGT wines. Those DOC wines which have achieved particular appreciation by the market can be desig-
nated, on the producers’ request, as DOCG; in this case producers are obliged to comply with much
more stringent production rules concerning not only the grape varieties and the maximum yields in
vineyards and wine-making but also the grape selection and the aging. DOC and DOCG wines undergo
strict chemical and organoleptic tests at the end of aging and (only for DOCG wines) before bottling; the
bottling area can be inside or outside the origin area (depending on the production specification—
“Disciplinare di produzione” in Italian).
4
Estimates on bulk wine at the winery level.
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3.3.2 Wine Production Organization
A structural analysis of the wine-making sector must take into account that
wine-making is a phase of the wine production chain with several sub-phases,
frequently performed by different companies. Given the data availability, the
following structural analysis of the Italian wine-making sector considers (i)
the technical units5 operating in the two main sub-phases of wine-making,
that is, grape processing (crushing) and bottling and (ii) how such technical
units are vertically linked and how they are linked upwards with the grape
production phase according to different supply chain models characterized by
specific integration patterns.
3.3.2.1 Grape-Processing Technical Units
According to the most recent data made available by AGEA and referred to
2012, crushing is carried out in about 55,000 plants. Processing capacity dif-
fers greatly, however, and the largest share of production is concentrated in
relatively few plants. About 80% of these plants are estimated to produce less
than 500 hl per year, overall representing less than 1% of Italian wine produc-
tion. On the other hand, about 200 plants, with a processing capacity of over
50,000 hl per year, represent about 60% of Italian wine production.
The grape-processing technical units can be classified into three categories:
individual farmers making wine on their farms by processing self-produced
grapes; cooperatives, which process mainly grapes delivered by members; and
private industrial wineries, which process purchased grapes. Sometimes the
borders between categories are not clear-cut, since some wine farmers also buy
grapes from other farmers to make their wine and some wineries have their
own vineyards. In 2012 individual farmers numbered 52,985 (97%), coop-
eratives 441, and industrial wine-makers 1414. In terms of the share of wine
produced, the cooperatives were the most important and produced 49.6% of
the total; industrial wine-makers produced 22.9% and farmers 27.5%
(Table 3.3).
Each category comprises technical units that can be very different in terms
of size and production orientation. Cooperatives include those with a few
dozen members, as well as the main Italian wine firms. Individual farmers
range from small producers to large prestigious firms. Also for the industrial
5
The term “technical unit” denotes a single production plant. Several technical units engaged in grape
processing may be under the control of the same company.
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56 A. Corsi et al.
Table 3.3 Total wine production by type of producer (2012)

Volume (hl) %
Farmers Wineries Cooperatives Farmers Wineries Cooperatives
Italy 12,364,272 10,315,146 22,298,290 27.5 22.9 49.6
North-West 1,674,055 1,250,168 1,270,420 39.9 29.8 30.3
North-East 5,125,387 3,670,548 10,340,461 26.8 19.2 54.0
Center 2,608,629 764,391 1,133,890 57.9 17.0 25.2
South 2,186,493 4,141,579 5,558,374 18.4 34.8 46.8
Islands 769,630 488,460 3,995,145 14.7 9.3 76.1
Source: Based on AGEA data, 2014
wineries, size may differ greatly. However, on average, the largest production
capacity by plant is among cooperatives, with an average size of over 50,000
hectoliters, as compared to 7295 for industrial wine-makers and only 233
hectoliters for on-farm producers. The plants with the highest average size are
located in the NE (1675 hectoliters) and in the Islands (1456), whereas the
lower average sizes are found in the NW (404 hl) and in the Center (430).
The weights of the categories differ among the different kinds (generic,
PGI, PDO) of wine (Table 3.3).6 According to the AGEA data, cooperatives
constitute the most important group for all kinds of wine but particularly in
the sector of PGI wines, where their share is about 58%. However, industrial
wine-makers are also strong in the sector of generic wine, with a share of 38%,
against the 45% of the cooperatives. Individual producers are stronger in the
sector of GI wines and, above all, for PDO wines, reaching 38% of the total.
The weights of the three categories also differ according to the area and the
type of wine. For generic wines (Table 3.4), cooperatives are of overwhelming
importance in the Islands. There, especially in Sicily, viticulture was tradition-
ally characterized by high yields, high alcohol degree, and low-quality grapes.
Hence, wine was mainly exported to be used to raise the alcohol degree of
other wines or was used for distillation funded by the EU. Although the aver-
age quality of wines in these regions has recently greatly improved, cooperatives,
which mainly collected those low-quality grapes, are still dominant. Along
with cooperatives, in the rest of Southern Italy, industrial wineries cover the
same segment. This outcome is probably also due to the lack of a high-quality
wine-making tradition and, hence, on the technical side, to the difficulty for
individual farmers to deal with flaws in the grapes and, on the commercial
6
The data presented here are based on AGEA data, which differ, in absolute terms, from the ISTAT data
(see Table 3.2) because the production volumes declared to AGEA every year may, for some types of wine
and for limited quantities, refer to the previous harvest. Nevertheless, we used them because they are the
only data available to estimate the grape flows to the various wine-making operators.
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Table 3.4 Shares of total wine production by type of wine, producer, and area (2012)
Farmers Wineries Cooperatives Total
Generic
Italy 17.2 38.0 44.9 100.0
North-West 43.1 38.3 18.6 100.0
North-East 13.2 37.2 49.7 100.0
Center 43.3 43.5 13.2 100.0
South 16.4 45.0 38.6 100.0
Islands 8.3 9.9 81.9 100.0
PGI
Italy 29.0 13.2 57.8 100.0
North-West 34.1 19.7 46.2 100.0
North-East 31.3 10.8 57.9 100.0
Center 59.4 11.1 29.6 100.0
South 22.8 22.9 54.3 100.0
Islands 12.3 9.3 78.4 100.0
PDO
Italy 37.6 14.5 48.0 100.0
North-West 40.2 29.7 30.1 100.0
North-East 33.3 12.9 53.9 100.0
Center 63.9 7.5 28.6 100.0
South 21.0 8.8 70.2 100.0
Islands 31.0 8.3 60.7 100.0
Source: Based on AGEA data, 2014
side, to adopt appropriate marketing strategies. By contrast, cooperatives are

also dominant in the NE for generic wines, but for quite different reasons.
Cooperatives there are strong, market-oriented organizations and include the
biggest firms in the sector. They have been successful in concentrating the
supply and in creating the most popular brands of value wines distributed
through large-scale retail.
In the NE, cooperatives are even more dominant for PGI wines, but farm-
ers also have more weight (Table 3.4). Using the PGI label more widely has
been a recent trend for many producers as a means to improve the quality and
reputation of their wines. The possibility to use the PGI label has been much
exploited by both farmers and cooperatives also in the South and, to a lesser
extent, in the Center.
The share produced by individual farmers is much greater for PDO wines
than for the other wines, in particular in the NW (especially Piedmont) and
in the Center (especially Tuscany) where they account for 40.2% and 63.9%,
respectively, of the total of PDO wines. In this segment, the industrial winer-
ies lose weight, since cooperatives maintain their share. This is the result of a
self-selection process. Those wine-growers with better-quality grapes and
higher wine-making skills choose to make wine on the farm. This is possible
mmorag@uchile.cl
58 A. Corsi et al.
due to the strong diversification of varieties and the access to several market-
ing channels. In particular, due to the long consumption tradition, consumers
prefer local wines, which makes finding local outlets easier. On the other
hand, small size makes it more difficult to exploit foreign markets, as well as
large-scale retail.
3.3.2.2 Bottling Technical Units
Bottling is the production phase with the lowest availability of specific infor-
mation. Nonetheless, bottling technical units are fewer than the number of
grape growers and wine-making technical units. A relatively recent study
(Malorgio et al. 2011b) estimated that about 8000 bottlers operate in Italy.
Also the bottling technical units are very different in size, and the largest
amount of wine (about 80%) is bottled by a very small share of bottlers (about
6%) with a relatively high processing capacity (more than 10,000 hl/year)
(Table 3.5).
About 20% of the bottling technical units belong to pure (plain) bottlers
bottling only wine produced by others. They deliver about one third of the
Italian bottled production to the market. The other bottling technical units
operate directly in wine-making plants. The majority of them (about 60%)
belong to on-farm wine-makers and the rest to both cooperatives and indus-
trial wine-makers. Despite the relatively high number of on-farm bottling
technical units, most on-farm wine-makers are not equipped with their own
bottling line; by contrast, most industrial and cooperative wine-makers are
equipped with bottling lines. The absence of bottling lines linked with wine-
making facilities has three causes. First, many wine producers (farms, indus-
trial wine-makers, or small cooperatives) have neither the sufficient size nor
the skills to market bottled wine on their own and therefore sell all their
production in bulk to other businesses. Second, several grape-processing tech-
nical units may belong to the same firm, which concentrates bottling in a
single station. Third, some small wine producers outsource bottling. Indeed,
Table 3.5 Bottling unit distribution by capacity

Shares on
Bottling capacity (hl/year) Units Bottled volume
< 1000 76 7
1000–5000 15 9
5000–10,000 3 5
> 10,000 6 79
Source: Malorgio et al. (2011b)
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many large bottling plants operate as co-packers, and some firms equipped
with truck-mounted bottling lines supply the service to small wine
producers.
3.3.2.3 Grape Procurement and Supply Chains
The foregoing discussion evidences that the Italian wine industry is based on
a complex network characterized by a radical concentration of flows. The
grapes originate in a huge number of farms but are crushed by a much smaller
number of wine-making technical units, and bottled wine is delivered to the
market by a small number of bottling wineries or pure bottlers.
Indeed, it is possible to identify different, though interrelated, supply
chains. These are two integrated chains, the Agricultural chain and the
Cooperative chain, and two de-integrated chains, the Industrial chain and the
pure Bottler chain.
The Agricultural chain and the Cooperative chain can be considered as
integrated supply chains because they are headed by bottling firms that deliver
to the market wine mostly deriving from self-produced grapes. Firms in these
chains can be simple, their technical structure consisting in a wine-making
and bottling plant, supplied by one or more vineyards in the immediate sur-
roundings, directly owned (the case of the Agricultural chain); or they can be
run by cooperative members (the case of the Cooperative chain). However,
firms in this chain can assume a complex network nature. For instance, one or
more bottling stations may be supplied by several grape-processing plants
belonging to the same firm and by grapes produced by farms directly owned
(case of Agricultural chain); or the bottling stations may be functionally
linked to wine-making plants via specific agreements among formally inde-
pendent cooperatives (the case of the Cooperative chain).
The Industrial chain and the Bottlers chain can be considered as de-
integrated supply chains because they are headed by firms delivering to the
market wine mostly derived from purchased grapes and/or wine. These firms
typically have a network of suppliers, in some cases located in the surround-
ings of the bottling station or, as in the case of larger actors in these chains,
spread throughout Italy and in some cases even located abroad. These net-
works of suppliers can be more or less stable, depending on the nature of the
relation between suppliers and supplied (contracts or market; see Sect. 3.5.2).
These four supply chains are anyway interrelated, because exchanges of
products may take place among firms belonging to different supply chains. In
some cases, grapes or wine produced by firms belonging to Agricultural or
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60 A. Corsi et al.
Cooperative chains that exceed their needs are delivered to de-integrated sup-
ply chains. In other cases, to enlarge their supply, firms belonging to the
Agricultural chain purchase grapes or wine from agents operating mainly in
the de-integrated supply chains. All these supply chains are important, in
volume and value. Different types of suppliers therefore characterize the
Italian wine industry. According to reliable evaluations (Malorgio et al.
2011a), the shares in volume of the four supply chains can be estimated as
Agricultural chain, 20%; Cooperative chain, 17%; Industrial chain, 30%;
and Bottler chain, 33%. The shares in value are probably different. In particu-
lar, the share of the agricultural chain is higher because its share of the more
expensive PDO wines in the total supply is larger, and this supply chain
includes the producers of the most prestigious Italian wines.
3.3.3 Supply Concentration and Top Players
Even considering that several technical units, also bottling plants, can belong
to a single company, wine supply in Italy remains quite fragmented, and the
degree of concentration of the industry is modest.
Mediobanca (2018) surveys the 155 main firms (those with a turnover of
more than 25 million euros). In 2016, their total turnover was 7.2 billion
euros, compared to an estimated Italian total of 13.9 (a share of 51.8%). The
four-firm concentration rate is only 13.6%, and the first ten companies only
account for 24% of the total turnover.
Two cooperatives (Cantine Riunite and Caviro) are the largest companies,
and another two (Cavit and Mezzacorona) are among the first ten companies:
cooperatives, though less in number, are absolutely significant in the overall
picture of Italian wine-making, both as to volume of wine and turnover
(Table 3.6). But also the other supply chains are represented among the top
wine firms. In fact, some big companies lead bottler supply chains (e.g.
Enoitalia and Italian Wine Brands) and other industrial supply chains (e.g.
Mondodelvino Group and Botter). Other companies represent cases of agri-
cultural supply chains, though among these large companies, a minor share of
grape and wine is usually outsourced7 (e.g. Compagnia de’ Frescobaldi and
Masi Agricola).
All the largest companies have their headquarters in the North (Veneto,
Emilia-Romagna, Piedmont, and Trentino) or in Tuscany but with plants or
Usually grape or bulk wine destined to low price labels.

7
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Table 3.6 Top 30 wine companies in Italy

Turnover (€ millions)
Export
share Av.
Headquarter 2016 Price
Name (region) 2016 2015 2014 2013 (%) Governance €/bott
Cantine Emilia- 565 547 536 534 66.5 Cooperative na
Riunite & CIV Romagna
Caviro Emilia- 304 300 314 321 30.5 Cooperative 0.89
Romagna
Palazzo Toscana 220 202 180 172 64 Family 7.71
Antinori control
Casa Vinicola Veneto 193 183 160 154 86 Family 3.8
Zonin control
Cavit Cantina Trentino 178 167 158 153 81 Cooperative 2.38
Viticoltori
Fratelli Martini Piemonte 171 162 160 157 90 Family 2.27
Secondo control
Luigi
Gruppo Lombardia 169 171 209 228 na Family 3.14
Campari control
(wine dept)
Casa Vinicola Veneto 165 154 136 136 97 Family 2.14
Botter Carlo control
&C
Mezzacorona Trentino 163 175 171 163 59 Cooperative 3.57
Santa Veneto 157 118 110 102 69 Family 6.19
Margherita control
Gruppo
Enoitalia Veneto 148 135 128 128 74 Family 1.52
control
IWB-Italian Lombardia 146 145 101 101 72 Mixeda 3.22
Wine Brands
Cantina Sociale Veneto 117 106 102 103 38 Cooperative 3.03
Coop. Di
Soave
Gruppo Cevico Emilia- 111 113 107 117 28 Cooperative 1.59
Romagna
Schenk Italia Alto Adige 106 104 82 80 73 Foreign na
control
Collis Veneto Veneto 106 104 75 78 30 Cooperative 6.3
Wine Group
Compagnia de’ Toscana 101 95 86 84 62 Family 8.89
Frescobaldi control
Mondodelvino Emilia- 101 91 73 66 84 Mixed 1.81
Group Romagna
La Marca Vini Veneto 101 76 60 54 79 Cooperative 2.82
e Spumanti
(continued)
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62 A. Corsi et al.
Turnover (€ millions)
Export
share Av.
Headquarter 2016 Price
Name (region) 2016 2015 2014 2013 (%) Governance €/bott
Lunelli Trentino 96 84 na na 26.5 Family na
control
Ruffino Toscana 93 94 81 75 93 Foreign 3.97
control
Villa Sandi Veneto 88 73 na na 45 Family na
control
Vivo Cantine Veneto 81 65 na na 47 Cooperative na
Cantina di La Trentino 76 83 na na 74 Cooperative na
Vis e Valle di
Cembra
Contri Veneto 76 79 82 92 39 Mixed na
Spumanti
Mionetto Veneto 72 65 na na 57 Foreign na
control
VS Vinicola Veneto 68 56 na na na Family na
Serena control
Gruppo Banfi Toscana 67 70 63 66 57 Foreign 4.69
control
Vignaioli Veneto 67 na na na na Cooperative na
Veneto
Friulani
Quargentan Veneto 66 68 na na na Family na
control
Masi Agricola Veneto 64 61 60 65 88 Family 5.2
controla
Sources: Mediobanca (2016, 2017, 2018) for turnover and governance; average prices
are our evaluations
a
Listed
suppliers in many Italian regions, forming complex supply networks. In par-

ticular, firms belonging to the integrated chains directly control a very large
area under vine. By way of example, Caviro controls 33,000 ha, Cantine
Riunite & CIV 6200 ha, Antinori 3000 ha, Zonin 2000 ha, and Frescobaldi
1350 ha.
Despite the sector’s low degree of concentration, the size of the top pro-
ducers is not small. Indeed, the turnovers of the two major producers
(Cantine Riunite & CIV and Caviro) are 565 million and 304 million euros
respectively, both comparable to, for example, the biggest Australian and
Chilean companies. The weak share of the top producers is rather due to the
very large value of Italian wine turnover but also to the absence of truly big
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non-cooperative firms. Indeed, the big cooperatives are the result of a process
of aggregation of medium/small firms; but similar processes have not
occurred among family companies. In the recent history of the Italian wine
sector, there have been no cases of medium/large firms in financial crisis or
gone bankrupt that other firms could easily acquire. The existing large non-
cooperative firms have grown only by internal growth without the big jumps
that, in the new producing countries, have characterized the evolution of
some wine companies (Green et al. 2006; Mariani and Pomarici 2011). As a
result, there are no true sector leaders, even if the cooperatives are the most
important players.
The analysis of the top 30 players reveals two other characteristics of the
Italian wine sector. Wine is the main or the only business of the leading firms
(in one case only, that of Campari, wine production is a division of larger
group producing beverages and spirits). Foreign capital is rare, since only 4
top companies in the first 30 (and not in the top positions) are owned by
foreign capital and only few cases among smaller firms are known8; on the
other hand, also Italian investments abroad are scarce.
The turnover trends observed since 2011 for larger companies (i.e. those
with turnovers above 50 million euros) show that a process of polarization is
ongoing within the supply chain (Pomarici 2017). The relative weight of the
larger companies is increasing, probably because of economies of scale, which
are especially possible for big companies in the commercial premium segment.
Smaller companies instead exploit niche marketing strategies and special
skills, addressing the super-premium segment and the local distribution chan-
nels. By contrast, medium-sized companies, in the class between 50 and 100
million turnover, show a reduction in their turnover share. This is probably
due to their size itself, which prevents either reaching satisfactory economies
of scale for intermediate quality segments or achieving a competitive advan-
tage for the top quality segments.
3.3.4 Marketing Strategies
The marketing strategies of individual firms are obviously very different, and
it is not easy to give a general assessment. In very general terms, firm brands
are not of primary importance for consumers, who are instead more attracted
by the appellations and by the region of origin in purchasing (Fait 2010;
Corduas et al. 2013).
The latest case (2016) is the transfer of the prestigious Biondi Santi winery in Montalcino to the EPI
8
Group (Champagne Piper-Heidsieck).
mmorag@uchile.cl
64 A. Corsi et al.
First, as regards the domestic market, a reason for the limited importance
of brands is drinking habits, which are traditionally strongly linked to local
wines. Second, with such a large number of producers, it is difficult for con-
sumers to select the information and to check the reputation of the individual
producers, and appellations are, albeit imperfect, quality signals (Cacchiarelli
et al. 2014). Third, on the producers’ side, most firms lack the financial
strength and the skills to promote and advertise their products individually,
and also among larger firms, the appropriateness of branding activities typical
of fast-moving consumer goods is questioned.
In fact, the marketing activities for premium wines are mostly of the push
type, with a deep personal involvement of entrepreneurs and oenologists, and
addressed to intermediaries, retailers, media, HORECA actors, and selected
influential consumers. They also try to benefit from the collective reputation
of the appellation and, possibly, from marketing campaigns funded by local
public bodies or organizations. On the basic wine side, instead, promotion
relies mostly on price promotion and on favorable positions on the shelves.
There are exceptions, however. One is in the segment of very high-quality
wines (super-premium, icon), where the winery brand is obviously a strong
asset and a marketing tool. Nevertheless, even the most famous producers are
usually linked to particular areas and to individual appellations, so that the
brand is used in association with the PDO. Very few exceptions are the Super
Tuscans and some other similar wines, originally created outside DOC/G
regulations, and now still in many cases PGI wines and for which only the
brand is a quality signal for consumers.
On the opposite side of the quality scale, brands (but not private labels,
unlike in other countries) are used and advertised for generic wines, since this
is the only differentiation signal that consumers can receive. For instance,
among value wines, mainly sold in supermarkets, Tavernello is the leading
brand (Giacomini 2010). It was launched by Caviro, the second cooperative
firm by size in Italy, 30 years ago, as the first wine in cartons in Italy.
The marketing style in exports is substantially similar, and firm efforts,
depending on their financial resources, are mostly addressed to enlarging and
enhancing their relationships with distributors, retailers, media, and
HORECA actors, and to influencing consumers, privileging actions below
the line (public relations, etc.) instead of above it (advertising). Since 2010
the export promotion of Italian wine firms has been supported by substantial
resources provided by the EU Common Agricultural Policy.
In regard to larger firms, the market segments in which they operate and
the strategies adopted are quite diversified. In general, cooperatives operate in
segments of low- and medium-quality wines, mostly oriented to the mass
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market, with smaller margins due to the prevailing large-scale retail outlet and
to a lower orientation to foreign markets (Mediobanca 2016, 2017, 2018). In
terms of types of wine, in 2017 “great wines” (with prices over 25 euros per
bottle) were 2.9% of wine labels for cooperatives, compared to 8.2% for pri-
vate companies. The shares for DOCG and DOC wines were 12.8% and
38.9% for cooperatives and 11.4% and 32.8% for private companies. The
shares of PGI were similar (36.6% and 35.8% for cooperatives and private
companies, respectively), but the latter had a greater number of generic wines
(11.8% vs. 8.8%).
In short, while cooperatives are more concentrated on the medium seg-
ment (with the remarkable exceptions of Caviro for basic wines and Collis for
super-premium wines), private companies are more dedicated to either the
top segment or the lowest one. The comparison of average prices indicates
that private companies belonging to the Agricultural supply chain fetch higher
prices (especially in the cases of Antinori, Frescobaldi, and Santa Margherita),
since they are primarily oriented to super-premium wines, while firms belong-
ing to the other supply chains focus on the basic/premium market.
Analysis of the top players also illustrates the different performances of the
Italian companies in terms of exports. Of the first 30 firms, 12 obtain more
than 70% of their turnover from foreign markets (up to 97% for Botter and
93% for Ruffino), 7 between 50% and 70%, and the rest below 50% (with a
minimum of 26.5% for Lunelli), with no pattern in this respect between
cooperatives and private companies.
A special mention should be made of the production of sparkling wines,
which has rapidly increased in recent years, up to 610–630 million bottles in
20159 (Osservatorio Economico Vini 2016; available at www.ovse.org). The
sector is highly diversified in production methods (second fermentation in
tanks, i.e. Charmat, 95–96% of the total, and second fermentation in bot-
tles, i.e. Champenoise, for the rest), firm size, appellations (generic, PGI,
PDO), taste (sweet, brut, dry, extra dry), and longer or shorter aging.
Whatever the segment, big wineries cover the largest part of the production
(almost 60%), since the sparkling wine technology is not easily affordable
for small farms. The differences in production methods translate into quite
different production costs and, in some cases, are conditioned by the level of
designation (Zanfi 2009, 2011). Accordingly, sparkling wine can range from
the value segment to the super-premium segment, depending on the pro-
duction method, the aging, and, obviously, the brand. The most important
In 2016 the value of the Italian sparkling wines destined for export was 1.2 billion (ISMEA 2018).
9
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66 A. Corsi et al.
production areas are located in the NW and the NE, and are represented by
Piedmont for Asti Spumante DOCG (70 million bottles in 2015), by
Lombardy for Franciacorta DOCG (top-class region for traditional method,
30 million), by Veneto and Friuli for Prosecco DOC and Valdobbiadene
Prosecco Superiore DOCG (470 million), and by Trentino-Alto Adige for
Trento DOC (8 million). The production of sparkling wines is expanding
out of the traditional areas under several appellations, with an overall share
that in 2017 was around 22% of the total.10
3.4 The Distribution

In quantitative terms, ISMEA (2015) estimates that of the total available wine
(domestic production—95%—plus imports), 45% goes to domestic con-
sumption, 46% to exports, and the rest to distillation and industrial use
(Fig. 3.2). Domestic consumption consists in 35% of bulk wine, most of
which is sold directly by producers (this part also includes a very small share
of self-consumed wine) and in a smaller amount sold on-trade.11 Wine in
bottles or packaged in other containers is estimated at 65% of domestic con-
sumption, of which the largest part (61%) is off-trade.
DOMESTIC PRODUTION
IMPORT CHANGE IN STOCKS
93%
5% 2%
TOTAL AVAILABILITY
DISTILLATION EXPORT
3% 46%
Potable alcohol, DOMESTIC
Crisis distillation,
3%
38% CONSUMPTION
By-products of 45%
wine-making, 59%
BULK BOTTLED
35% 65%
Fig. 3.2 Wine consuption flows. (Source: ISMEA, Scheda di settore 2015)
10
Unpublished information from UIV Wine Market Observatory.
11
The term “on-trade” means sold for consumption in hotels, pubs, restaurants, and cafes, whereas “off-
trade” means sold in supermarkets, stores, food retailers, corner shops, and so on.
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Obviously, in the bottled off-trade channel, large-scale distribution pre-

vails, compared to other channels like traditional food stores, wine shops, and
direct sales. Nevertheless, no further reliable data on the commercial channels
covered by all domestic consumption until the final consumer are easily acces-
sible because they are available only for specific wine categories (PDO, PGI,
generic wines). As regards bulk wine, the share of direct sales to final consum-
ers is not small, especially in the case of individual farmers and cooperatives
and for some regions because it is still customary for urban consumers to buy
wine directly12 and to bottle it by themselves.
More detailed data on the distribution channels are provided by the above-
mentioned Mediobanca surveys (2018), which report the shares of the sales
channels used by the top companies, in total and by company category of
price segment (Table 3.7).
Among the 155 largest firms, considering their overall supply, the largest
share of domestic sales is directed to large-scale retail (38%); and it is bigger
for cooperatives (46%) than for private companies (34%). Direct sales (13%)
have a relatively lesser importance. The share of HORECA is much smaller
for cooperatives (8%) than for companies (22%), since cooperatives prefer to
provision other channels such as large-scale retail and wholesalers, probably
because of the higher volumes involved. The wholesale channel remains an
important channel for all firms, because it is a way to reach consumption areas
far from those of production. In short, the main difference between the big
firms and the farmers is that the farmers sell more through direct sale and local
supermarkets or wine shops, and less on-trade, especially through large-scale
retail.
Table 3.7 Percentage of Italian domestic supply by distribution channels (2017, 155
top wine companies)
Supply of the top Italian wine companies
All wines Great wines
Distribution channels for domestic All All
supply firms Private Coop firms Private Coop
Direct sale 12.6 14.4 10.6 18.8 23.6 12.1
Large-scale retail 38.2 33.9 45.5 3.3 3.4 2.1
HORECA 16.5 21.7 8.2 37 37.1 38
Wine shops and wine bars 8.1 10 4.5 23.6 26.3 16.7
Wholesalers and intermediaries 16.8 14.6 20.5 8 3.7 17.2
Other channels 7.8 5.4 10.7 9.3 5.9 13.9
Source: Mediobanca (2018)
12
It is also customary for farms and cooperatives to deliver bulk wine to consumers’ homes.
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68 A. Corsi et al.
The destination of the great wines (those with a price of more than 25
euros) of the largest firms is rather different and suggests the different orienta-
tion of distribution channels in terms of type of wine. HORECA and small
shops (wine shops and wine bars) have the largest share (respectively, 37% and
24%) of consumption of great wines, followed by direct sales (19%), while
large-scale retail has a very low weight (3%). The main difference between
cooperatives and companies is that the latter use more direct sales and small
shops and rely less on trade.
Distribution outlets are reached in Italy in almost the same way by all firms.
Firms are connected with small outlets like wine shops, restaurants, bars, and
wholesalers through a network of sales representatives, which can be larger or
smaller according to the firm’s size. The purchase platforms of large-scale
retailers or restaurant chains are reached via specialized intermediaries.
Distributors (i.e. operators that have the monopoly within an area of the sales
of the products of a winery and that promote its brand) have a quite limited
role in Italy, especially in the case of great wines.
The exported wine is shipped mainly in bottles; indeed, bottled still and
sparkling wines account for 75% of total exports in volume.
Most wine firms reach the foreign markets through local importers abroad,
possibly supported, in the case of smaller firms, by specialized intermediaries
(Mediobanca 2018). Larger companies may have various importers in the
same country, one to reach large retailers and others to reach wine shops and
restaurants. The 155 larger companies too mostly export through foreign
importers (75% of their exports), less through their own networks (10%),
though cooperatives have a larger weight in the latter (14%). Indeed, only few
firms, private or cooperative, have established controlled distribution compa-
nies in some importing markets. Among the great wines, the share of import-
ers is slightly larger (78%), especially for private companies (88%).
3.5 Relationships Along the Chain

3.5.1 The Flows Along the Production Chain
The Italian wine production chain is based on different supply chains differ-
ently integrated. The flows of grapes originate from a very large number of
farms, but an increasingly smaller number of operators control the flows of
wine in the subsequent phases of the chain.
The available data enable detailed analysis of the flow in the first step of the
wine production chain, from grapes to bulk wine, showing how grapes
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28.1
(17.2-29.0-37.6) Winegrowers non
cooperative
members
Winegrowers
On-farm Other
cooperative
winemakers winegrowers
members
41.2 8.2
(35.6-46.7-41.9) (9.2-11.1-6.0) 22.5
(37.9-13.2-14.5)
Industrial 30.7
Cooperatives (47.2-24.3-20.5)
winemakers
Map legend: grape flows share for total wine (generic wine, PGI wine, PDO wine)
Fig. 3.3 Estimable grape flows among operators for total wine, generic wine, GI wine,
PDO wine. (Map legend: Grape flows share for total wine (generic wine, PGI wine, PDO
wine))
produced by the three types of professional farmers already identified (Sect.

3.2.3) move to the three types of wine-makers (Fig. 3.3). Farmers who are
cooperative members and farmers who make their own wine do not sell grapes
on the market for a price. The grapes passing through a sale are those pur-
chased by cooperatives from nonmembers and by industrial wineries. They
can be estimated at about 8% and 22.5% of the total volume of grapes13
(Mazzarino and Corsi 2015). According to the latest available data, referring
to the 2012 harvest, the provision of grapes to cooperatives by their members
accounted for 41% of the total production, and the share of on-farm wine-
makers was 28%. Hence, the share of grapes passing through a formal market
is about a third of the total output (31% in 2012). The formal market there-
fore strongly concentrates the flow, because about 60,000 farmers deliver their
grapes to only 1400 industrial crushing plants. This adds to the concentration
operated by the cooperatives, as 441 cooperative plants process the grapes
produced by 83,000 cooperative members.
This estimate does not consider the flows of grapes produced by other farmers to farmers making wine;
13
moreover, grapes possibly sold to cooperatives and industrial wineries by farmers making wine, when
exceeding their processing capacity, are aggregated to the grapes sold by “other farmers”.
mmorag@uchile.cl
70 A. Corsi et al.
The flows are different for the different categories of wine. For the grapes
destined for generic wine, the part provided by cooperative members is 36%,
the part processed on the farm is 17%, that purchased by cooperatives is 9%,
and that purchased by industrial wineries is 38%, so that the share of the
formal market (47%) is relatively high. The corresponding share for PGI
grapes is only 24% (11% purchased by cooperatives, 13% by industrial win-
eries), while the share processed by cooperatives from their members is 47%,
and the amount self-provided by farmers is 29%. Finally, for PDO wines, the
share of the formal market is about 20% (6% purchased by cooperatives,
14.5% by industrial wineries), while 38% is used for on-farm wine-making,
and 42% is provided to the cooperatives by their members.
The analysis of flows in the second step of the wine production chain, from
bulk to bottled wine, cannot be supported by detailed data, but it can never-
theless be based on a reliable evaluation (Malorgio et al. 2011b). This second
step involves about 70% of the wine produced, as about 30% is marketed in
bulk for domestic consumption or export.
In analyzing this second step, it is convenient first to consider that the wine
produced on-farm and by cooperatives is only partially bottled by the same
operators. The shares of their own wine directly bottled by farmers and coop-
eratives are about 45% and 20%, respectively. Therefore, on-farm wine-
makers and cooperatives, net of internal exchanges, deliver to the intermediate
wine market over 50% of the wine volume. Indeed, on-farm wine-makers
typically either bottle their entire wine production or sell it totally in bulk. On
the contrary, most cooperatives are equipped with a bottling line, but they
typically bottle only a share of their wine and supply bottlers in Italy or abroad,
especially in the last period of development of an international bulk market
(Mariani et al. 2012).
The industrial wineries buy on the intermediate market and bottle bulk
wine for about 30% in addition to the wine that they produce directly. Of
course, pure bottlers buy the totality of the wine that they bottle on this mar-
ket. Also this intermediate market strongly concentrates the flows, as the wine
produced by about 45,000 wine-making technical units is delivered to fewer
than 3000 bottling stations.
Summing up, the structure of Italian wine industry, as based on both inte-
grated and de-integrated supply chains, includes two intermediate markets,
grapes and wine. Although smaller in volume than 30/40 years ago, these
markets are still important in quantitative and functional terms and are struc-
turally necessary for the functioning of the de-integrated supply chains but
also give flexibility to the functioning of the integrated supply chains.
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3.5.2 Intermediate Markets and Contracts
In the past, there existed big local markets where intermediaries and wine-
makers traded a very large proportion of grapes. These markets are now
reduced in size because they handle only one third of the grapes, given that
most of the grapes are processed either by the farmers themselves or by their
cooperatives. Moreover, when wineries produce higher-quality wines, they
tend to have stable purchase relationships with wine-growers—so as to ensure
a supply of good-quality grapes—on the basis of formal or informal
contracts.
Price setting differs according to the different flows. Of particular impor-
tance is the mechanism used by cooperatives. Since the Italian law imposes
strong constraints on the destination of profits of cooperatives, in practice
profits are distributed to members as higher prices for the grapes that they
deliver. Members (who generally are bound to provide their total production
to their cooperative) therefore receive a first price as an advance. When the
cooperative accounts are closed, profits are distributed as an additional price
(balance). Hence, the real price that cooperative members receive depends on
the overall wine market and on the cooperative’s efficiency rather than on the
market for grapes. Similarly, for wine-growers that are also on-farm wine-
makers, the real price that they receive for their grapes depends on the overall
wine market and on the wine-making efficiency rather than on the market for
grapes. Of course, for on-farm wine-makers, also the quality of the grapes
(and, hence, their skills in growing the grapes) matters. The same applies to
the cooperative members, since cooperatives usually pay their members
according to the quality of their grapes. In the long term, cooperatives and
on-farm wine-makers have acted as powerful indirect regulators of the market
of grapes, over which wholesalers and industrial wine-makers traditionally
exercised market power. Partly, growers provide grapes to industrial wineries
under contract, so that prices are set in advance. This also concerns some on-
farm wineries, which increase their wine production by buying other grapes,
and it mainly happens when they aim at quality wines. When costs are the
main concern, wineries buy on the spot, have no long-term relationship with
the sellers, and choose mainly according to the price. The prices on these mar-
kets are not easy to detect but mainly depend on the supply of grapes and/or
on the existing wine stocks of previous harvests. However, the market for
grapes based on spot prices is a minor market, because it concerns a minor
part of the processed grapes. However, the share of the spot market is larger
for the grapes for generic wines or for some large-volume PDO/PGI wines.
mmorag@uchile.cl
72 A. Corsi et al.
In some cases, collective agreements are signed between the associations of

the wine-growers and those of the industrial wine-makers, setting prices and
other conditions. This concerns some wines where almost the totality of
grapes is processed by industrial wineries, typically in Piedmont and Sicily. In
Piedmont the most important agreement concerns the Moscato grapes for
Asti and Moscato d’Asti DOCG wines, but others deal with Brachetto grapes
for Brachetto d’Acqui and Piemonte Brachetto wines, Cortese grapes for Gavi
wines, and Chardonnay and Pinot noir grapes for Alta Langa sparkling wines.
In Sicily, they concern the grapes for Marsala and Pantelleria DOC wines. For
example, the agreement for Moscato sets the grape price yearly, within the
limits of established yields (possibly lower than those that are allowed by the
PDO regulation). Some small price increase is possible for particularly good-
quality grapes. The payments are usually in two installments, of which the
first at the end of the year, for 50–75% of the total amount. In Sicily, the
agreements on grapes for Marsala and Pantelleria DOC wines set the mini-
mum price for the “basis” grape (20° Babo). To this, further payments, directly
agreed upon by the seller and the buyer, can be added in the case of higher
sugar content or good conditions of the grapes; these payments may substan-
tially increase the minimum price (CIA 2012).
The intermediate wine market is of some significance. In this market some
important geographical delimitations may exist because, for most PDO wines,
the area where bottling is possible corresponds to the grape-growing area.
Such limits do not exist for PGI and generic wines. Also in the intermediate
wine market, exchanges are regulated by contracts or spot transactions. The
prices of wines destined to be sold as PDO or PGI are mainly influenced by
local factors, while the prices of generic wines are increasingly influenced by
international markets, as Italian large bottlers are now also procuring wine
abroad.
3.5.3 Interbranch Organization and Sector Governance
The Italian wine industry lacks a unitary governance because the actors are
represented by many organizations. Farmers are represented by three general
farmers’ unions, and cooperatives are represented by two main unions plus
some minor ones. Moreover, two wine producer organizations (Unione
Italiana Vini and Federvini) are also active; many farmers or cooperative
members of these bodies are also members of their general association. As a
matter of fact, this fragmentation often hampers the development of efficient
and shared policies for the sector.
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Also other bodies have a role in the governance of the Italian wine industry.
Among them, the association of oenologists (Assoenologi), the association for
wine tourism, the association of wine cities, and, in particular, the interbranch
organizations constituted among producers of one or more PDO/PGI wines
(Consorzi di Tutela) according to the EU and national regulations14 to pursue
the interests of their members—in particular to promote their wines, to
improve knowledge about production techniques and market conditions, to
regulate the supply, and to prevent the unlawful use of the name of the wine.
In Italy about 110 Consorzi di Tutela are active and are recognized by the
Ministry of Agricultural, Food and Forestry Policies; these bodies at the
regional level negotiate local wine policies, while their national association
(Federdoc) takes part in the negotiations concerning the national wine
policy.
Research and technical innovation are carried out mainly by research centers
of the network of the Ministry of Agricultural, Food and Forestry Policies
(Consiglio per la ricerca in agricoltura e l’analisi dell’economia agraria—CREA)
and by several university departments, which also train the oenologists.
3.6 Conclusions
The overall picture that can be drawn is a multifaceted one. However, some
main structural elements emerge.
A first aspect is the diversity of the operators included in the structure of
the Italian wine sector (Sardone 2014). This applies to grape-growing as well
as to wine-making and distribution.
The wine-growing sector extends throughout Italy but with specific territo-
rial differences. Its core lies in Veneto, Tuscany, and Piedmont for quality
wines and Emilia-Romagna, Veneto, and Apulia for mass consumption wines,
even if also other regions produce wine grapes. It is mainly composed of small
family farms, growing a large number of varieties and with a large number of
PDO and GI wines.
The wine-making sector, too, comprises a variety of operators with differ-
ent specializations and different relations for grape procurement, defining two
integrated supply chains (Agricultural and Cooperative) and two de-integrated
ones (Industrial and Bottler), each of which is highly diversified. In the overall
system, cooperatives are the most important players, both as leading firms and
14
EU: Reg. 1308/2013, art. 157, 158, 167; Italy: L. 238/2016, art. 41.
mmorag@uchile.cl
74 A. Corsi et al.
as widespread organizations of wine-growers. Historically, the fragmentation

and the small size of wine-growers rendered them subject to the market power
of wholesalers and industrial wine-makers. Cooperatives, supported by a leg-
islation favoring them and by farmers’ unions, have been the reaction to that
situation, with greater or lesser success depending on many factors, particu-
larly social capital and human capital. Differences in social capital and histori-
cal heritage are at the origin of the differences within the cooperative sector,
of which the stronger and more market-oriented part is located in the North.
Some are leading firms and have succeeded in adding value to the mass pro-
duction of their members.
Private companies are also among the leading firms, but within this group,
firms belong to different supply chains, and their strategies are rather diverse,
both as to the orientation to the internal or the export market, and to the
market segment and to the production organization.
In this regard, on-farm wine-makers are part of the trend changing the
relationships within the industry, that is, the trend toward quality. This has
been a consistent trend of the Italian wine industry in recent decades, as
shown by the constant increase in the number and share of PDO and PGI
wines and, more significantly, by the success in keeping up with the competi-
tion of the new producing countries on the export market and in increasing
the average export price (Corsi et al. 2004, 2018). On-farm wine-makers have
been deeply involved in this trend, and their share of PDO wine production
is particularly large. Given the average small farm size, they have had a strong
incentive to upgrade the quality and to try to gain larger margins by exploit-
ing the consumption trends to decreasing consumption but to higher-quality
wines.
For the largest part of the sector, the differentiation strategies are mainly
based on appellations rather than on brands. Brands are important marketing
tools in three segments: (i) the value wine segment, mainly occupied by big
cooperatives; (ii) the sparkling wine segment, dominated by private compa-
nies; and (iii) the quantitatively small but economically important segment of
some icon and super-premium wines. Appellations are an important market-
ing tools especially for the growing sector of on-farm wine-makers striving to
enhance the quality of their wines but not big enough to afford marketing
strategies of their own. However, they are also largely used by big firms and
big cooperatives, and even producers of super-premium and icon wines are
generally complying with appellation regulations, since their wines are linked
to a particular terroir.
The present situation, although so varied, is nevertheless consistently the
result of a long process toward vertical integration; and therefore the role of
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intermediate markets and intermediaries has decreased relatively to the past,

though it remains important in some areas. Wineries have a strong incentive
to have their own vineyards, since if the majority of the grapes that they use
come from their own vineyards, they are classified as agricultural firms, and
the fiscal regime in that case is much more favorable. On the other side, farm-
ers have a strong interest in adding value to their products either by control-
ling the processing directly or through their cooperatives. Within this trend,
an obvious selection process is ongoing, since technical and marketing skills
are required for the single wine-makers and managing skills are required for
the cooperatives. The final outcome is unclear, but it is doubtful that a single
organization model will prevail. It seems much more likely that a variety of
solutions will survive by exploiting specific assets and skills.
References
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———. 2015. Scheda di settore. Settore vino. Aggiornata al 21/10/2015. Ismea,
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———. 2018. Scheda di settore. Settore vino. Aggiornata ad aprile 2018. Ismea,
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———. 2013. 9° Censimento dell’Industria e dei Servizi. Roma.
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Malorgio, G., E. Pomarici, R. Sardone, A. Scardera, and D. Tosco. 2011b. La catena
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mmorag@uchile.cl
4
The Spanish Wine Industry
Luis Miguel Albisu, Cristina Escobar, Rafael del Rey,
and José María Gil Roig
4.1 The Importance of the Wine Sector in Spain

Worldwide, Spain usually has ranked third among wine producer countries
after Italy and France. However, it is the most important country in terms of
land allocated to vineyard, accounting for 12.7% of the world’s surface
(967.000 ha of 7.6 million ha). Furthermore, it has recently become the larg-
est world exporter in volume, with 22.1 million hl in 2017, which represented
20.5% of the world’s wine exports (OIV 2018).
L. M. Albisu (*)
CITA, Zaragoza, Spain
e-mail: lmalbisu@cita-aragon.es
C. Escobar
Center for Research in Agro-food Economics and Development UPC-IRTA
(CREDA), Castelldefels, Spain
e-mail: cristina.escobar@upc.edu
R. del Rey
Spanish Observatory of Wine Markets (OeMv), Madrid, Spain
e-mail: direccion@oemv.es
J. M. Gil Roig
Technical University of Catalonia, Catalonia, Spain
Center for Research in Agro-food Economics and Development UPC-IRTA
(CREDA), Castelldefels, Spain
e-mail: chema.gil@upc.edu

https://doi.org/10.1007/978-3-319-98633-3_4
mmorag@uchile.cl
78 L. M. Albisu et al.
The vineyard is a key crop for sustainable development in most territories

in Spain. It contributes to the economy, to territorial balance and to landscape
maintenance, and offers a product linked to the Spanish history, culture and
diet. Moreover, the Spanish wine has significantly contributed to enhance the
image of the country abroad (OeMv 2015a). Some regions of Spain could not
be understood without the vineyard, such as Castilla-La Mancha, where, for
some municipalities, wine and vines have contributed to structure the terri-
tory, to create social cohesion and to preserve the environment and the biodi-
versity (JCCM 2011). Spain produces a wide range of wines, including
well-reputed wines that have been able to compete internationally. In fact,
there are 91 protected designations of origin (PDOs1) and 41 protected geo-
graphical indications (PGIs).
The value of wine and must production is not stable, as it depends on the
yearly harvest conditions, among other factors. The contribution of wine and
must in Spain to the value of total crop production, and to the value of the
primary sector as a whole (agriculture, livestock and fish), reached its maxi-
mum in 2013—the best year since the last 25 years—due to a very good
harvest (MAGRAMA 2015b). The production of wine and must accounted
that year for 1868.5 million euros, which represented 7.09% of the total agri-
cultural output and 4.23% of the total primary sector output. For the last
ten years (2005–2014), the average weight of wine and must production was
of 4.62% and 2.80% from the total agricultural output and the primary sec-
tor output, respectively. Moreover, in spite of the traditional volatility, there is
an upward trend along the analyzed period.
Grape output volatility has to do mainly with yield variation, but total
output shows a positive trend on average, despite reduction of the planting
area. As the total area allocated to vineyards has been continuously decreasing
over the last decade, increasing production has been due to yield increases as
a consequence of the transformation of dry land into irrigated land, the intro-
duction of higher-yielding varieties and other technological and agronomic
improvements. In 2015 vineyards accounted for 941,000 of hectares, which
means a decrease of 18.9% in the last ten years (Fig. 4.1).
A singular characteristic of the Spanish wine sector used to be that vine-
yards were located in nonirrigated land; however, recent and large investments
have changed that situation. Only 21.6% of the total area was irrigated in
2004. Ten years later, irrigation has been extended to 37.2% of total v ineyards,
PDO is equivalent to the French term AOC, Appellation d’origine contrôlée.

1
mmorag@uchile.cl
The Spanish Wine Industry 79
1186 1167
1165 1160
1200 1135 1131 10000
1108
1046
1002
963 946 946 947
1000 941
8000
800
6000
1000 ha
1000 t
600
4000
7241 7483
7064
400 6595
5934 6063 5963 5952 6108 6222
5535 5809 5799
5332
2000
200
0 0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Production (1000 t) Area (1000 ha)
Fig. 4.1 Evolution of the vineyard area and the production of grapes in Spain. (Source:
Own elaboration from Agriculture Yearbooks and Agriculture Statistics.
MAGRAMA. Spanish Ministry of Agriculture, Food and Environment (MAGRAMA
2016))
with higher percentages in Navarra (61.5%), Balearic Islands (54.3%), La

Rioja (50.8%) and Castilla-La Mancha (46.6%) (MAGRAMA 2015a).
The value of grape production, as mentioned, follows the same pattern
than the total output, indicating also that prices have been quite stable along
the analyzed period. Higher yields are observed in 2013 giving a total produc-
tion of 7,635,000 of tonnes, while the average harvest (2002–2015) was a
little bit higher than 6,200,000 of tonnes (Fig. 4.1).
Spain enjoys a variety of agro-climatic conditions, soil heterogeneity and
grape varieties, generating a wide range of different wines. Spanish weather
and agronomical conditions make wine grapes able to grow all over the coun-
try. However, there are some regions which are more specialized in vineyard
(Fig. 4.2):
• La Rioja and the province of Alava (the southern province of the Basque
Country). Both are included within the most known and important
Spanish wine regions (QDO La Rioja2).
2
QDO: Qualified Designation of Origin.
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Fig. 4.2 Wine vineyard specialization in Spain (2012). (Source: Own elaboration from
the Agriculture Yearbook 2013. MAGRAMA. Spanish Ministry of Agriculture, Food and
Environment (MAGRAMA 2015c))
• The southern provinces of Galicia (NW of Spain), which are mainly known
for their PDO Rias Baixas and Ribeiro.
• The Canary Islands: They represent a small proportion of the total vineyard
in Spain. However, this crop is one of the few that bears their agro-climatic
circumstances, and, thus, the region is highly specialized on it.
• The provinces of Barcelona and Tarragona, in Catalonia. They account for
more than 90% of the cava (sparkling wine) produced in Spain (PDO
cava).
• Some of the provinces of Castilla-La Mancha and southern Extremadura.
This big land extension includes 17 PDOs, among them La Mancha and
Valdepeñas, two of the largest PDOs in Spain.
The most important region in terms of area of vineyard is Castilla-La

Mancha, which gathers 46.6% of the total area in Spain. This is because of its
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big extension and its high crop specialization. Next, we find Extremadura,
Castilla and León and the Valencian Community, with similar percentages
over the total (8.7%, 7.8% and 7.5%, respectively). La Rioja and Catalonia
rank in the fourth and fifth places, with 5.8% and 4.7% of the surface, respec-
tively (MAGRAMA 2015c).
4.2 S
tructural Features of the Wine-Growing
Sector
4.2.1 Farm Size
Agricultural holdings (AHs) with vineyard in Spain are relatively small with
an average utilized agricultural area (UAA) of 6.57 hectares. There is, however,
a high heterogeneity among the different regions. Among specialized wine
regions, larger holdings are located in Extremadura and Castilla-La Mancha,
while the smallest are concentrated in the Canary Islands, Castilla-León and
Aragón. In relation to farm size, 39.8% of the holdings have from 1 to less
than 5 hectares (accounting for 8.6% of the total vineyard UAA), while 33.6%
have from 5 to less than 20 hectares (28.2% of the total vineyard UAA), being
the latter the most important segment. Holdings between 20 and less than 50
hectares of UAA (14.1% of the total number of vineyard holdings) represent
the second most important segment in terms of surface (26.8% of the vine-
yard area) followed by the segment with 100 hectares of UAA or more (4.2%
on the total holdings) and accounting for 20.5% of vineyard UAA (Agricultural
Census 2009, INE).
4.2.2 Land Tenure
The land tenure of the vineyard holdings is primarily the private property,
representing 73.2% of their UAA. The rest is basically rented (20.0%), with a
small percentage of sharecropping or other systems (6.8%). If we segment
vineyard holdings taking into account their total standard output, it can be
observed that, in general terms, the smaller the total standard output, the
higher the share of land in property. Rented land accounts for over 25% in
larger holdings, while sharecropping is relatively more important in interme-
diate holdings (Farm Structure Survey 2013, INE).
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4.2.3 Employment
In 2013, the employment in AHs oriented to viticulture was 57,609 annual

working units (AWU), which represented 7.1% of the total employment of
the primary sector (812,199 AWU) (INE, Spanish National Statistics Institute,
Farm Structure Survey 2013). Apart from direct employment, viticulture gen-
erates a significant amount of indirect employment in the food industry and
the service sector, which is difficult to quantify (PTV 2012). In 2013, the
average AWU per holding was 0.83, very close to the average figure for the
whole Spanish agricultural sector which was of 0.84 AWU. The labor force
comes mainly from family work, accounting for 61.2% of the total AWU. From
this percentage, the head of the holding provides 36.9% of the total AWU,
while other family members participate with the remaining 24.3%. Stable
workers and temporary workers account for 18.4% and 20.4% of the total
AWU, respectively.
4.2.4 Legal Entity
According to the last available Agricultural Census (2009), AHs in Spain are
basically owned by natural persons (94.2% of the AH with UAA), not enter-
prises. The grape-growing sector does not differ significantly from this figure
(95.8%). Moreover, this model of family enterprise/farmer manager is quite
homogeneous across the different Spanish regions although some slight differ-
ences can be observed. Among the most important wine producer regions, in
Catalonia and Navarra, the percentage of commercial firms is relatively higher
(Farm Structure Survey 2013, INE).
4.2.5 Crop Specialization
Grape production in Spain is mainly used for the production of wine (95.7%
of the vineyard holdings allocate grape production to wine). Among these
holdings, approximately 50% are registered to produce wine with either a
PDO or a PGI indication, even though final sales under a quality indication
may depend on the needs of the market. Furthermore, the production of
quality wine is concentrated in larger holdings. In fact, the average size of
holdings oriented toward quality wines is 8.36 hectares, while it is only 4.64
hectares in the case of holdings producing table wines. In the case of holdings
oriented to produce table grapes or raisins, the average surface is 2.30 and
1.26 hectares, respectively (Agricultural Census 2009, INE).
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4.2.6 Grape Varieties
In Spain there are 66 grape varieties that are relevant in surface. However, only
a few represent a high proportion of the Spanish vineyards (in relative num-
bers). The most importance grape variety in Spain is Airen, which occupies
22.5% of the surface. Airen is a white grape variety, very abundant in the
South Spanish plateau, especially in Castilla-La Mancha (Fig. 4.3). The sec-
ond most important grape variety is Tempranillo, which occupies 21.4% of
the Spanish vineyard. It is a red grape variety extensively grown to produce red
full wines. Its origin comes from the Spanish region of La Rioja, being, there-
fore, the most produced grape within this region. The third position in the
ranking, further down in significance from the previous two, is occupied by
the grape variety Bobal (6.7%), which has its origin in the Valencian
Community. It has been traditionally linked to bulk wine production,
although there is a growing interest in this variety to produce quality wines.
Grenache occupies the fourth position with 6.6% of the surface. This
Mediterranean variety is one of the most widely planted red wine grape variet-
ies in the world. Its origin is in Aragon but has spread rapidly across other
regions. It has a special relevance in the production of red and rosé wines.
Monastrell occupies 4.7% of the total surface and has also an important pres-
ence worldwide. These five varieties account for 61.9% of the total Spanish
vineyard. The remaining 38.1% is shared by a large amount of grape varieties,
25%
22.5%
21.4%
20%
15%
13.2%
10%
6.7% 6.6%
4.7% 4.3%
5%
2.9% 2.4%
2.2% 2.1% 2.0% 1.9%
1.4% 1.3% 1.2% 1.2% 1.1% 1.0%
0%
Airen
Grenache t.
Cabernet s.
Syrah
Tempranillo
Bobal
Grenache
Monastrell
Macabeo
Pardina
Not identified
Verdejo
Palomino
Merlot
Cayetana b.
Mixture
Muscatel Alex.
Xarel·lo
Rest
Fig. 4.3 Distribution of the main grape varieties in Spain (% on total surface) (2014).
(Source: Own elaboration from the Inventory of wine-growing potential, 2015.
MAGRAMA. Spanish Ministry of Agriculture, Food and Environment (MAGRAMA
2015d))
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such as Macabeo, Pardina, Grenache tintorera, Cabernet Sauvignon, Syrah,

Verdejo, Palomino, Merlot, Cayetana blanca, Muscatel from Alexandria and
Xarel·lo as the more relevant.
Since the introduction in 1999 of the “grubbing-up” and “restructuring
and conversion of vineyards” measures in the Common Market Organization
for wine, grape varieties in Spain have suffered some important changes. Most
of the older varieties have experienced a progressive loss of their relative
importance during the last 15 years (MAGRAMA 2015d). It is worth noting
the significant decrease that was experienced by the grape variety Airen, which
has reduced its surface in almost in 100,000 hectares (−30.7%). On the
opposite side, among the traditional varieties, only three have increased their
surface: Tempranillo (28.8%), Macabeo (10.3%) and Grenache tintorera
(7.0%). Foreign varieties have become more relevant, especially Syrah,
Chardonnay and Cabernet Sauvignon. Verdejo has received an increasing
attention during the last years while the success of Palomino has to do with its
resistance to drought, being highly appreciated in the south of Spain and base
for the famous Sherry wine.
Spanish vineyards have a considerable age: 41.6% of the vineyard area is
more than 40 years old (MAGRAMA 2009). As it is expected, traditional
varieties tend to be older than most of the modern varieties. Therefore, Syrah,
Cabernet Sauvignon and Merlot are the three youngest grape varieties. As it
was mentioned, however, the grape variety Tempranillo, which is a traditional
one, remains also planted in recent years, probably due to its prestige and
notoriety in the country.
4.2.7 Farm Net Income
Farm Net Income (FNI) is obtained by adding to the total output the bal-
ances of the subsidies and taxes (also those related to investments). From this
result, the total costs are deducted. Total costs encompass the total intermedi-
ate costs (plants, fertilization, crop protection, machinery and buildings’
maintenance, energy, etc.), depreciation and the total external factors (rent,
interests and wages). In general terms FNI represents the compensation for
the use of the owner fix production factors (land, capital and work), plus the
business’ risk (benefits or losses). Data in this section come from the Farm
Account Data Network database (FADN 2018, European Commission).
Long trends have to be interpreted with some caution, as there have been
some changes both in the sample size and in the methodological framework.
In any case, results in Fig. 4.4 provide a good orientation about the economic
performance of vineyard holdings.
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70000
60000 5,999
50000
32,500
82 48 5,604
40000 4,679 4,607
4,917
21,757
108 678
21,379
202
19,119
22,246
175
55,905
30000 1,653 2,585 257 4,962
4,594
16,992
17,786
3,112
16,823
15,854
12,133
9,312
42,352
38,582
7,808
37,925
36,413
20000 6,465 6,433
30,418
6,652 4,932
28,459
26,510
4,523
24,859
5,385 5,291 5,193 5,473 3,903 4,598

30,029
5,166 3,762
10000 2,533
14,728
3,072 2,767 2,676
13,716
2,680
11,489
11,126
10,026
8,200
8,164
7,465
7,731
7,215
0 -54 -152 -432

Total output…
Total output…
Total output…
Total output…
Total output…
Total output…
Total output…
Total output…
Total output…
Total output…
Total Costs
Total Costs
Total Costs
Total Costs
Total Costs
Total Costs
Total Costs
Total Costs
Total Costs
Total Costs
-10000
Euros
2007 2008 2009 2010 2011 2012 2013 2014 2015* 2016*
Total output Balance current subsidies & taxes

Balance subsidies & taxes on investments Total intermediate consumption
Depreciation Total external factors
Farm Net Income
Fig. 4.4 Economic results of the Spanish viticulture holdings (euro). ([*Preliminary
data] Source: Own elaboration from FADN 2018 (European Commission))
The FNI for viticulture holdings in Spain shows an upward trend from
2007 to 2016, with an average of 19,659€ per holding. The result from 2016
is especially high (32,500€). Conversely, minimum is found in 2009 (12,133€)
(Fig. 4.4). The variation on the FNI follows closely the variation on the total
output, which mainly comes from revenues from the production of wine and
grapes. On the other hand, total costs show a steady rise on the studied years,
with a higher rise in 2012 (25.3%). This last rise is experienced in the three
main cost types: intermediate consumption, depreciation and total external
factors, which raised 22.8%, 40.6% and 21.5%, respectively.3
The poor economic performance of grape production is a major challenge
to overcome. Low farm revenues may threaten the future sustainability of
small farms and provoke an increasing abandonment of vineyards. Low farm
prices per kilogram have stimulated grape production in volume to maintain
farm income in many Spanish wine regions, generating wine surpluses which,
in turn, have push prices down particularly for basic wines. Finally, the
increasing international market competition has accentuated this problem,
especially in nowadays economic crisis context (PTV 2012).
3
Considering the ten years globally, the total intermediate consumption represents the highest cost,
accounting for 49.0% of total costs, followed by external factor costs (31.0%) and depreciation (17.4%).
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4.3 S
tructural Features of the Wine-Making
Sector
4.3.1 Plant Size and Size Distribution of Wineries
In 2013, it was reported that there were 4,036 wineries in Spain (down to
4,024 in 2014), which accounted for 14% of the total number of enterprises
in the agrifood sector. The average size was small as 84% had less than 10
workers and only 66 of them (1.6% of the total) had more than 50 workers
and 9 had more than 200 workers. This structure defines the scope of their
commercial activities although things are changing due to the recent crisis.
Some years ago the small size of most wineries encouraged them to focus pri-
marily on local markets, where there are strong emotional linkages between
producers and consumers; the recent crisis in domestic consumption has
forced a great number of companies to look at international markets.
According to ICEX’s profile of the export wine company (see OeMv 2015c),
in 2014 there were 3897 Spanish wineries exporting to international markets.
If we compare this figure with total number of wineries reported by the
Spanish National Institute of Statistics (INE) (INE 2015), such number
would mean that 96.8% of total registered wine companies have some inter-
national sales activity.
Actually, this profile of the exporting Spanish wine firm reinforces the idea
of many small companies in the wine sector but with a relatively high degree
of concentration of sales. As shown in the table, 65.3% of total exporting
companies sell less than 50,000€ of wine in international markets, and they
account for 1% of the total export value, whereas only 2.4% of total compa-
nies (the 93 largest ones) account for more than two thirds of total export
value (Table 4.1).
In total, all the wine enterprises occupied 23,743 persons, which accounted
for 6.7% of the total employment in the agrifood sector. However, that is the
direct employment as many more people were employed in other related
enterprises. Again, despite the existence of a large number of firms, there is
quite a big concentration of total sales among a small number of wineries. It
is estimated that five enterprises cover more than a quarter of the total sales in
the Spanish market and that the largest eight wineries in Spain—the only sell-
ing above 100 million euro—account for almost half of total sales (Castillo
2015a). Some cooperatives are large, and they collect their grapes from their
cooperative members close to where their elaboration plants are. In the case of
the most common small cooperatives, the grape production area is in the vil-
lage or nearby villages. The top 25 wineries in Spain are listed on Table 4.2.
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Table 4.1 Profile of the Spanish wine-exporting company in 2017

Company’s export Number of Exports Percentage of Percentage of
value firms (1000 €) firms exports
<5.000 € 1,364 1,822 33.5 0.1
From 5.000 to 846 11,062 20.8 0.4
25.000 €
From 25.000 to 366 13,227 9.0 0.5
50.000 €
From 50.000 to 953 168,073 23.4 5.8
500.000 €
From 500.000 to 439 671,451 10.8 23.0
5 mill €
From 5 mill to 102 1,376,136 2.5 47.1
50 mill €
>50 mill € 6 680,911 0.1 23.3
Total 4,076 2,922,680,0 100.0 100.0
Source: OeMv (2018) with data from Instituto Español de Comercio Exterior (ICEX)
In 2014, four companies stand out with more than 200 million euros in
sales. These companies are the Freixenet Group, J. García Carrión, Félix Solís
Avantis and the Codorníu Group. Spain is a country with a large vineyard
area which is widespread all over the country although the cultivation inten-
sity is different among regions. The top wineries by volume are located in the
areas where the production is the greatest such as Castilla-La Mancha (large
cooperatives and the firms Félix Solís, García Carrión and others) or nearby
regions. There is not far distant grape transportation in the country. However,
there are some commercial flows among wineries for cheap wines or to rein-
force shortcoming due to climatological effects, varietal compositions to reach
wine balances and price differentials.
On the other hand, some medium to large wineries are fully related to
quality wines and are located in the most famous PDOs. Their margin is usu-
ally greater than the one for larger-volume wineries. However, during the last
20 years, there has been a wide distribution of companies of all sizes in differ-
ent regions in order to produce different wines. The largest ones have had a
tendency to invest in well-known PDOs in order to improve their margins
and provide higher-quality wines. Medium and even some small companies
traditionally linked to famous wine regions have also invested in other PDOs
or non-PDO areas to elaborate different wines (e.g. whites or sparkling) as
well as to elaborate products at lower cost. A special case should be considered
for cava wines, mostly located in the Catalonian region and concentrated
around two big firms (Freixenet Group and Codorníu Group), who have also
entered into the production of other types of wines in several Spanish PDOs.
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Table 4.2 Top 25 wineries in Spain according their sales in 2014 (million Euros)
Company name Sales 2014 (million Euros)
1. Grupo Freixenet 535.0a,b
2. J. García Carrión, S.A. (wines) 334.4
3. Félix Solís Avantis, S.A. 253.0
4. Grupo Codorníu 218.0a,c
5. Grupo Miguel Torres 182.4
6. United Wineries Iberia, S.A. (Gr. Arco) 160.0a
7. Grupo González Byass (wines) 150.0a,d
8. Pernod Ricard Winemakers Spain 120.0a,c
9. Grupo Barón de Ley 86.9
10. Grupo Faustino 80.0a
11. Cia. Vin. Norte España, S.A. (CVNE) 77.6e
12. Grupo Marqués de Riscal, S.A. 55.0a
13. Grupo Vivanco 50.0a
14. Grupo Osborne (wines) 50.0a,f
15. Grupo Vinos & Bodegas 47.5
16. Reserva de la Tierra S.L. 47.5
17. Grupo Hijos de Antonio Barceló 45.0a
18. Juan Ramón Lozano, S.A. 43.4
19. Grupo Bodegas Gallegas 42.0
20. López Morenas, S.L. (wines) 40.0
21. Cherubino Valsangiacomo, S.A. 40.0a
22. Bodegas Ontañón, S.A. 39.9c
23. Vicente Gandía Pla, S.A. 36.0
24. Grupo Bodegas Muriel 35.0
25. Viñedos de Aldeanueva, S.Coop. 34.5
Source: Castillo (2015a)
Notes: aAuthors’ estimation; bClosing date of the balance sheet in April 2014 and
2015, respectively; cClosing date of the balance sheet in June 2013 and 2014,
respectively; dClosing date of the balance sheet in August 2013 and 2014,
respectively; eClosing date of the balance sheet in March 2014 and 2015,
respectively; and fClosing date of the balance sheet in January 2014 and 2015,
respectively
4.3.2 Types of Wine-Making Firms
According to Langreo and Castillo (2013), wine-making firms can be differ-

entiated by the degree of vertical integration between grape-growing and
wine-making processes. Thus, the main types are:
–– Firms that produce their own grapes, elaborate their wine and, after aging,
bottle it. They are mostly small and medium firms that sell high-quality
wines with prices above average.
–– Cooperatives that gather grapes from their members and produce bulk or
bottled wines. These enterprises account for around 60% of total wine
production, although a smaller portion of sales.
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–– Wine firms that buy grapes and elaborate wine which is sold on bulk or
bottled. They operate with contractual arrangements. Some of them mix
with their own grapes as well.
–– Wine firms that occasionally buy wine, mature it and bottle it. They can
mix with their own wine depending on their business strategies.
There are wine-making firms that have intermediate situations and cannot
be located in any of those groups. Altogether it can be said that, in a country
with large wine production, and with wineries located in many different
regions, all sort of wine-making firms can be found. It is also necessary to
point out that cooperatives and private firms have usually different approaches
due to their entrepreneurial circumstances. Generally speaking, cooperatives
concentrate their efforts on volume, whereas many private firms are small. It
does not mean that the opposite can also be found.
4.3.3 Types of Products
Spain has all sorts of wines (whites, reds and rosés) and many other kinds like
cavas (sparkling), fortified wines and wines with low alcohol content. Reds are
the most important corresponding to the traditional taste of the Spanish con-
sumer, which exist in many different regions.
Quality wines have been commonly identified with designation of origin
(PDO) wines, and top wineries are usually located in one or several of the
PDOs. This means that Spanish consumers relate quality wines to those com-
ing from PDOs, although perceptions vary for each one of them. Some PDOs
have limited or local markets, whereas others sell a great part of their produc-
tion in international markets.
QDO Rioja stands above all of them, and it has been able not only to have
a wide distribution in the Spanish market but to achieve leadership in many
geographical areas. Its system of young, “crianza” and “reserva” wines has been
widely used by many other wineries all over Spain. The main difference is the
amount of time needed to age wines and to follow certain technical specifica-
tions. Nowadays, international markets are not so prone to accept those cat-
egories, and they specify their own conditions, which creates some tensions
among members of the PDO regulatory councils.
4.3.4 Marketing Strategies
Although changing very quickly in recent times, traditionally Spanish winer-

ies have not been so concerned about marketing, and they have concentrated
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their efforts on producing grapes and wines of good technical quality. They
have had an understanding that mainly technical measurable parameters are
essential to reach quality wines. There is a great amount of brands in the mar-
ket, estimated in more than 25,000. Distribution brands account for more
than a third of total sales, and the first entrepreneurial group covers 16.8% of
total sales, and the second only reaches 5.2%, which is another sign of the
limited impact of big wineries and the spread of wine businesses in this coun-
try (Castillo 2015a).
Although a vast majority of companies have recently experienced some
exposure to international markets, most of the smaller ones primarily reach
local markets where either their brands or the PDOs in which they are located
support their market penetration. Mid to large wineries have totally different
approaches looking for national and international distribution. Some of their
brands do not have much strength, and they rely either on PDO brands or on
country recognition. Most recent marketing trends, however, are pushing
wineries to heavily invest in recognized brands, which only since 2013 are
allowed to identify wines from different regions. In Europe PDOs have cer-
tain impact especially for the most important ones but faraway countries, like
the United States and China, rely more on the image of the country of origin.
Unfortunately, most Spanish wines reach low-segment prices, and therefore
their image is low. In the last decade, there has been a great increase of wine
volume exports, but growth in terms of value has been slower.
4.4 The Distribution

Sales of Spanish wine—in volume—have been increasing for a long while and
keep on growing in a continuous upward trend (Fig. 4.5). However, if we
divide the total wine market into domestic and international markets, we can
observe that there is a clear difference between them: while the export market
keeps growing continuously, even showing a more pronounced boost in recent
years, the domestic market, conversely, recedes in a continuous slope down.
The continuous drop of the domestic market—which is of a great concern—
has pushed the wine sector to a deeper internationalization, also encouraged
by the increase in production. From 2003, the volume of exports has sur-
passed the domestic consumption reaching a new maximum every year since
then. Fortunately for the wine sector, the exports growth rate has generated a
positive upward trend in the Spanish wine market as a whole. Nevertheless,
these major trends are recently changing. Since the end of the economic crisis
in 2015, the domestic market experiences certain recovery after years in which
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Total Market Domestic market Exports

34.3
32.9 32.9 33.0
31.5 31.8
28.0 28.2 28.0 28.0

26.7 26.1 26.9 27.3
25.1 24.8
23.5 24.0 23.3 22.9 23.3 23.7 23.0
22.9 22.7 23.0 22.6
21.7 21.4
20.6 21.322.0 24.5
20.2
18.5 23.122.5
16.6 17.216.8
15.9 16.316.0 15.9
15.3
14.514.514.614.814.214.213.813.814.114.314.414.615.6 14.8
17.4
13.913.8 13.7 9.8 9.8 10.5
10.5 11.0 11.3 11.0

9.9 13.411.1 10.2 9.9 9.9 9.8
8.0 8.0 8.5 8.7 9.0
7.2
5.5 6.1 6.1 6.2
4.4 5.1 4.3

Fig. 4.5 The Spanish market for wine (million liters). (Source: OeMv (2018) (Spanish
acronym for Spanish Observatory of Wine Markets))
the downfall was stabilized. At the same time, the strong need for urgent
international markets to sell excessive production is now less dramatic.
Although still very dependent on the size of the harvest, international sales of
Spanish wines do not seem to grow much more in liters while showing certain
signs of improvement in value terms.
Wine consumption in Spain, as in other traditional producing countries,
has been steadily declining. This downfall of consumption is mainly related to
a cultural change of habits, partly associated with the behavior of younger
generations showing a greater detachment from wine and its culture.
Traditionally, wine consumption used to be a daily routine (for lunch or din-
ner at home). However, over the last 20 years, there has been a progressive
substitution of wine by other drinks such as beer and nonalcoholic drinks.
Nowadays, the consumption of wine has become more sporadic, linked to
more special meals (with friends, business, etc.) and more focused on higher-
quality wines. In fact, the consumption of quality wine has increased, but it
has not compensated the decrease of non-PDO wines, as it will be shown
later.
On the other hand, in other traditionally non-producing countries, wine
consumption is growing, and consumers understand it differently than in the
Mediterranean producing countries (Albisu and Zeballos 2014). Therefore, it
would be helpful to fully understand why some of the formulas used in non-
producing countries are not working in Spain and, conversely, which formu-
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las should be used in Spain in order to reverse this trend or, at last, to stabilize
current figures. Some hints could be to dissociate wine and food consump-
tion, make wine consumption an easy practice—not too sophisticated—and
bring it closer to the youth, among other measures (Albisu and Zeballos
2014).
4.4.1 Spanish Wine Exports
Spanish wine exports have been experiencing a continuous growth both in

value and in volume (Fig. 4.6). In 2012 the value of wine exports represented
69.5% of total production. This percentage is higher than that in Chile and
Australia (63%), which are known as paradigms of wine-exporting countries
in the world. Furthermore, it indicates the determined commitment of the
sector to international markets, mainly as a way to counterbalance the already
mentioned decrease of domestic consumption which, on the other hand, has
been negatively affected by the economic crisis since 2010 (Compés et al.
2014). In 2014 the difference in volume between production and domestic
consumption reached 28.2 million hectoliters, which became the largest
world difference, above the 24.3 million of Italy, and second largest in relative
terms (72.4% of production) just behind Chile’s 74.1% (OeMv 2015b). This
desperate need to export in Spain counterbalances also the decrease in wine
distillation due to changes in the European legislation, which used to be very
important for Spain.
3,186
/Itr millions EUROS millions LITRES

2,959
2,961
2,873
2,926
2,748
2,486
3,040
2,965
2,853
2,765
2,767
2,157
2,113
2,019
2,685
1,693
1,869
2,403
1,755
1,695
1,605
1,497
2,110
1,503
1,463
2,031
2,089
1,366
1,348
1,863
1,181
1,832
1,902
1,802
1,622
931
1,377
1,291
800
1,314
1,251
1,208
1,128
848
779
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
1.03
1.10
0.94
0.98
1.21
1.21
1.14
1.16
0.99
0.89
0.94
0.96
0.97
1.06
1.00
1.00
0.93
0.99
1.23
0.97
0.97
1.06
1.12
Fig. 4.6 Spanish wine exports. (Source: OeMv (2018) (Spanish acronym for Spanish
Observatory of Wine Markets))
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Table 4.3 Spanish wine exports by type of wine in 2017

Value (million Value Volume Volume
Euros) (%) (million l) (%) €/l
Bottled wine 1713.0 58.6% 803.0 34.1% 2.13
PDO 1268.3 43.4% 369.3 15.7% 3.43
Others 444.7 15.2% 433.7 18.4% 1.03
Bulk 588.0 20.1% 1263.9 53.6% 0.47
Sparkling wine 458.7 15.7% 181.9 7.7% 2.52
Vermouth and semi- 98.1 3.4% 91.0 3.9% 1.08
sparkling wines
Fortified wines 64.8 2.2% 17.5 0.7% 3.70
Total wines 2922.7 100.0% 2357.2 100.0% 1.24
Source: OeMv (2018) (Spanish acronym for Spanish Observatory of Wine Markets)
The positive trend of the Spanish wine exports can be associated to the
competitive prices, which have been quite stable during the last decade with
the only exception of 2013, when prices increased because of a harvest short-
age on the previous year. Spain has become the most competitive wine exporter
in the world, especially in relation to non-PDO bulk wine at very low prices.
In 2017, bulk wine prices were as low as 0.47 €/l, after growing due to a new
relatively short crop that year. Therefore, exports of bulk wines account for
53.6% of the volume exported while only contributing to 20.1% of the total
export value (Table 4.3). On the opposite side, bottled wines4 including those
commercialized in bricks account up to 58.6% of the value of the Spanish
export although only represent 34.1% of the total volume.
This situation has generated some controversy among some stakeholders
who have questioned if this was the best strategy for the Spanish wine sector
(Del Rey 2015; de la Serna 2013; among others), encouraging a better market
positioning to achieve higher export prices. In this context, there is a general-
ized idea that Spain has to progressively move away from exporting “unspe-
cialized bulk wine” to varietal higher-priced bulk wines and increase exports
of branded and bottled wines to final international consumers.
However, the current situation has to be understood within a historical
perspective. Spain has had a long tradition in exporting wines which goes
back to the eighteenth century with the Jerez/Sherry wines (Maldonado 1999)
and even to the Roman and Phoenician times. More recently, exports of
Spanish wines recovered after the establishment of many good wine profes-
sionals in the North of the country, while phylloxera attacked French vines.
It was during the second half of the nineteenth century and the early twen-
tieth century when the production of quality wines started to attract atten-
tion, mainly focused in La Rioja (red wines) and Penedès (sparkling wines).
Bottled wines refer to wines sold in containers of up to a maximum of two liters.

4
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However, most of the domestic population continued to demand table

wines. By the 1970s and the 1980s, significant changes took place in con-
sumption and export patterns in Spain. In fact, the international demand for
bulk wines had a first increase until the 1970s, which also can explain the
delay in the adoption of a generalized new strategy of producing quality wines
(Fernández and Pinilla 2014) and anticipated the larger growth experienced
by exports of this type of wine in the twenty-first century.
More quality wines were produced and started to be exported worldwide,
from the most famous regions. Companies started to grow, driven by a higher
demand, to face new challenges. While domestic consumption in all produc-
ing countries including Spain started to decrease sharply, wine began to be a
popular beverage in non-producing markets, pushed by new research and
comments on its health properties and the lifestyle it represents. Initially,
France and Italy were the best-placed producers to take advantage of these
new trends, but Spain has followed quickly.
Nowadays, when the Spanish wine sector is characterized by a highly diver-
sified supply, with modern business networks able to innovate (PTV 2012),
and when the international reputation of Spanish wine has been widely
recognized through the concession of many international awards (Compés
et al. 2014), it is of paramount importance to make an effort to communicate
the reality of the Spanish wine industry and to reshape the image of Spanish
wines among international consumers. It is also the time to make Spanish
wines easily available to consumers all around the globe by improving global
distribution.
Improving competitiveness is a challenge that requires creating competitive
advantages—public and private—that enable companies to increase quality,
differentiation and innovation all over the food chain (Compés et al. 2014).
At the company level, however, strategies are conditioned by structural and
organizational characteristics of the industry. Some of the companies are big
enough and keep on growing to improve their commercial efficiency. Many
others are small wineries who need to develop joint strategies in order to inter-
nationalize their products (PTV 2012).
4.4.2 W
ine Distribution Channels in the Domestic
Market
As it was mentioned before, the wine domestic market has been shrinking
continuously during the last decades although it seems to be more stable in
recent years. This reduction has been worsened during the economic crisis
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since 2008, which, among other effects, has strongly hit the HORECA
(HOtels, REstaurants and CAfeterias) sector (Fig. 4.7). According to official
figures—not always reliable particularly in this sector—wine consumption in
Spain in HORECA decreased by 53.4% between 2006 and 2017 (from 616
to 287 million liters) (OeMv 2018). This is linked to overall decrease of the
HORECA business during the economic crisis since 2010. However, the later
recovery from the hardest years of economic crisis shows positive change rates
for on-trade wine sales in 2016 and 2017. The decrease is also related to cul-
tural and socioeconomic changes, the rise of blood alcohol level controls, the
great diversity of wine references and a low product rotation (Castillo 2015b)
as well as due to legislation against smoking in public places.
In order to cope with this dramatic downfall, wineries have been working
to find other channels that could be a way out for their productions and that
would compensate the uninterrupted drop of domestic consumption. Some
companies started to increase sales on the off-premise channel to big distribu-
tors, which appeared as a challenging shift in their commercial development.
But a further search for other channels, especially for small and medium firms
previously relying on the HORECA sector, also responds to a strategy of
diminishing the strong dependence on big retailers and improving producers’
positioning in the food chain (PTV 2012).
Therefore, in the last recent years, there has been an increase of sales that go
through non-traditional channels of distribution, such as (1) wineries’ direct
sales, especially through wine tourism; (2) online sales and E-commerce, sup-
Household Horeca Others
7.3% 8.0%
13.4% 13.2% 16.2% 13.8%
17.4% 20.6%
24.5%
31.0% 31.5% 30.6% 29.3% 29.9% 33.1%
36.5% 37.9% 39.6% 39.4%
51.7% 51.6%
48.8% 48.9%
47.4% 51.4% 32.8%
48.6% 45.1%
28.7% 26.6%
29.6% 29.7% 24.6%
34.4% 24.4%
25.7%
26.6% 27.2%
41.0%
42.7% 43.4% 42.3%

40.4% 37.8% 37.9%
36.4% 34.8% 34.1% 34.3% 34.6% 38.9% 39.6% 42.0% 39.1% 36.4%
33.8% 33.3%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* 2012 2013 2014 2015 2016e 2017e
Fig. 4.7 Spanish wine sales structure for the domestic market (%) (e = estimation).
(Source: OeMv (Spanish acronym for Spanish Observatory of Wine Markets))
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ported by social networking, as sales diversification and direct communica-

tion with the consumer; (3) pop-up caterings and (4) the so-called
self-consumption or direct distribution to associates mainly in cooperatives.
The search for other channels is supposed to grow in the upcoming years
(OeMv 2015a; Castillo 2015b).
4.4.3 Household Consumption
The main drinks consumed in Spain are mineral water and soft drinks and
soda. Mineral water consumed was 52.36 liters per capita in 2013, followed
closely by soft drinks and soda with 45.90 liters per capita. However, both
have experienced opposite trends since 20085: while the consumption of min-
eral water is declining, that of soft drinks has increased. Among the alcoholic
drinks, beer is clearly preferred over wine; beer consumption reached 16.54
liters per capita in 2013 (following an upward trend), while the consumption
of wine only arrived at 9.23 liters per capita, with a clear declining trend also
for consumption at home. Table wines accounted for a higher percentage of
this reduction, while the consumption of quality wines has experienced a
slight but continuous upper trend (Fig. 4.8).
4.4.4 Place of Purchase
In Spain, wine for consumption at home is mainly purchased in supermarkets

and self-service stores. In YoY6 June 2017, this type of retail outlets accounted
for 50.2% of total wine sales. Their relative importance has increased over the
last decade. If we add hypermarkets, total share increased up to 64.6%, but
their relative importance has decreased since 2005. Discount stores are also
important in wine distribution (15.0% in YoY June 2017) although, as in the
case of hypermarkets, their market share has decreased. Therefore, the wine
sector depends highly on big retailers that push their prices down because of
their strong market power (PTV 2012) (Fig. 4.9).
Traditional wine shops occupy the fourth place. This type of retail outlets
has also reduced its market share although, since 2012, the negative trend has
turned to be slightly positive. It is noteworthy to mention the limited rele-
vance of internet sales although with a significant increase in the last two years.
Methodological changes introduced in 2008 would explain a small break on data series.
5
YoY = year on year.

6
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16 15.2
14.41
14 13.31
12.87
12.16
12 11.52
11.00 10.70
10.38
10.00
10 9.88 9.61 9.47 9.45
LITRES/CAPITA
9.23 8.93 8.88 9.07 8.93
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013* 2014 2015 2016 YoY
june
2017
Total Wines AOC wines Non-AOC wines Sparkling wines Other wines
Fig. 4.8 Wine consumption at home in Spain (liters per capita). (Source: Own elabora-
tion from MAPAMA. Spanish Agriculture Ministry. Food Consumption Panel (MAPAMA
2018))

4.5.1 The Role of Different Operators
The structure of the supply chain determines the role of the different opera-
tors (Langreo and de Castillo 2013). Thus, there is a direct market from grapes
to wines, which account for 15–25% of total production with private firms
taking the lead; the cooperatives that have an important role on bulk wines;
and the distributors, at wholesale level, which gather wines coming from
many small and medium enterprises to sell bottled wines.
Cooperatives look for immediate benefits as they are caught with requests
from their members to achieve high prices for their grapes, whereas private
companies can have longer perspectives. It does not mean that this behavior
always happens because small- and medium-sized firms, which are the most
common types, do not have enough capital to face long-term strategic deci-
sions. Family wine firms have also their own difficulties, especially for second
and third generations, as it is difficult to meet agreements among many family
members.
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6XSHUPDUNHWVDQG6HOIVHUYLFHVWRUHV +\SHUPDUNHW
'LVFRXQWVWRUHV %DU7UDGLWLRQDOZLQHVKRS
,QWHUQHW &RRSHUDWLYHRUVWDIIVWRUH
7UDGLWLRQDOVWRUHV 6HOIVXSSO\
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Fig. 4.9 Place of purchase of wine for at-home consumption in Spain (%). (Source:
Own elaboration from MAGRAMA. Spanish Agriculture Ministry. Food Consumption
Panel (MAGRAMA 2015e))
4.5.2 Contractual Arrangements
Two stages can be differentiated. The first is between wine growers and wine
plants to transform grapes into wines. Nowadays, strong links exist among
farmers and their cooperatives because they have norms to compulsorily sup-
ply all the grapes they produce, which was not the case years ago. The price
settlement is open to final results, and they might get a small part a few
months after delivering the grapes. However, the final monetary compensa-
tion is arranged once the cooperative has received the full amount. This cre-
ates difficulties to farmers because the span between delivering the grapes and
getting the final compensation could last more than one season.
Unfortunately many cooperatives do not have quality specifications, or
they still have too weak requirements. This approach has negative conse-
quences because oenologists are not able to reach the quality standards they
would like to have for their wines. On the contrary, there are cooperatives that
specify many technical conditions, such as the distinction between grape vari-
eties, grape harvesting period, technical care needed along the season and all
sort of technical standards when the grapes reach the wineries.
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These different situations depend on the final products cooperatives sell in

the market. Thus, cooperatives interested in selling bulk wines at cheap prices
to be blended by other distributors are not so interested in requiring strict
quality conditions, and they are more concerned on the quantity and the
price. On the other extreme, there are cooperatives which sell their wines in
more competitive worldwide markets and have to accomplish requirements
set by their clients, and consequently they transmit to their farmers all the
needed requirements.
Private firms have different arrangements. Some of them have contracts for
each season under detailed specifications, but it is becoming more common to
establish contracts covering several seasons in order to assure quality and con-
trolled supply to meet market needs in the medium term. This kind of
arrangement is the norm for those wineries that want to produce quality
wines or/and wineries producing wine in denominations of origin where it is
not easy to find a great amount of farmers producing quality grapes, so it is
important to establish long-term contracts. Nevertheless, the existence of a
myriad of small wineries with their own production areas transforms the
entire enterprise in a compact decision-making agent of which grapes and
wines to produce.
More recently, the release of a new legislation in August 2013 makes com-
pulsory for private wineries (not for cooperatives) to establish written con-
tracts with their suppliers and make payments within a 30-day period after
delivery of grapes.
4.5.3 Leadership Along the Chain
Retailers, like in many countries, take the leadership along the chain. Three
features reinforce their role in Spain: (1) the excess supply existing in the mar-
ket, (2) the need of many wineries to find a place on the shelves to sell their
wines and (3) the small size of most of the wineries. Specialized or gourmet
shops have a determinant role for small wineries as they are for them the most
important channel of distribution. Internet has not yet reached selling signifi-
cance, but it is the most important information channel for both the national
and foreign markets.
PDOs take the reference lead among consumers, and the diversity of brands
is compensated by the leadership that QDO Rioja and to a lesser extent PDO
Ribera del Duero have nationwide. Other PDOs are known locally or not so
widespread. Very few brands are distributed all over Spain, and some of them
do not have a great impact because it is quite common, among wine firms, not
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to use the same brand in food shops and the HORECA channel of distribu-
tion. One of the reasons is the high markup that restaurants apply to their
wines and the contrast, on prices, consumers might have when comparing
different channels of distribution, which is a cause of continuous
misunderstanding.
Only a limited number of large wineries exert their power along the supply
chain. They mostly sell cheap wines although they are also entering into the
market of high-quality wines in different PDOs. Large cooperatives are taking
an important role because large distributors need big suppliers and coopera-
tives are able to attend their requests especially in export markets. Their trans-
formation from bulk wine sellers to bottled wine sellers has reinforced their
role in the supply chain.
4.6 Conclusions
The Spanish wine sector is characterized by its prominent position in the
world. It is the most important country in terms of land allocated to vineyard
area as well as one of the top wine producer countries, competing in the last
years with Italy for the first rank. It is also the largest wine exporter. However,
it is generally considered to have cheap wines in the market due to a big,
recent, disequilibrium between restructured and more irrigated vineyard sup-
ply and lower domestic consumption and distillations. This recent unbalance
has pushed large amounts of Spanish wines in bulk, mainly to other and more
experienced exporting countries like France, Italy, Portugal and Germany. At
the same time, stakeholders are increasingly concerned with the effect that
such unbalance may also have in the distribution of low-price bottled wines,
which may erode the image of the whole category. On top, the best wines
from the most prestigious regions occupy low- to medium-segment prices in
international markets expanding the idea of a country with a global supply of
low-price and somehow medium-quality wines. However, large investments
in reinforced distribution capacity and the expansion of the number of export-
ing firms, jointly with better knowledge of international markets, may improve
the value of Spanish wine exports.
There are vineyards in many regions, but Castilla-La Mancha gathers close
to 50% of the total area. It is distinguished by having more than 130 quality
geographic indications differentiated by its origin, either PDO or PGI, and
the PDO Rioja stands well above the rest, but there are several of them who
have increased their quality in the last decade and are making great efforts to
reach better positions on international markets.
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Water scarcity is one of the main determinants of traditional low and vola-
tile yields which, in turn, generate a lack of homogeneous quality, reducing
the competitiveness of the Spanish wines in international markets. To com-
pensate for this shortcoming, some wine trade flows among regions have usu-
ally taken place, lowering prices significantly. The recent restructuration of
around 300,000 hectares of new plantations (partially financed by the
Common Agricultural Policy) has allowed increasing yields generating posi-
tive expectations of production increases during the next decade which have
already been noticeable in the last years.
Grapes are cultivated in small holdings. To compensate the low competi-
tiveness of the small size of vineyards, the strategies have been focused on
creating large cooperatives or producing high-price wines. There are two
grapes widespread over the country, which distinguish their wines: Airen for
basic white wines and Tempranillo for red wines. However, there are many
other local varieties not fully exploited to sell wines in international markets
and, so far, only known in local markets.
Despite the fact that the average winery size is also small, their degree of
internationalization has increased sharply in recent years due to demand limi-
tations in the Spanish market. The proliferation of brands characterizes the
Spanish market, and there are few brands with a real national impact. The
largest wineries are not ranked among the top in the world. Private wineries
have put more emphasis on bottled wines than cooperatives although some of
the latter have placed their brands in the most competitive markets all over
the world.
One of the most intriguing questions is why wine consumption has been
so low in Spain and how to stop the downward trend. Young people do not
consider it a fashionable drink, and beer is more popular. Women have not
been incorporated as new consumers, and many efforts should be made to
create new products and images. Due to several reasons, consumption at
hotels and restaurants, at least until mid-2015, was suffering more than con-
sumption at home. This creates constant market tensions, as supply is con-
tinuously increasing, forcing wineries to make efforts to export their wines.
However, Spanish wines are poorly positioned in international markets in
terms of both price and image. There is a real need to significantly increase
investments to reverse this global situation. The good news, though, is that
such investments have been made in recent years and may have consequences
in the short run.
It is possible to find all sorts of wines, but red wines are prevalent over the
rest for bottled wines although the vineyard area for whites is larger. Cavas or
sparkling wines have particular significance for their penetration in interna-
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tional markets, and their production is concentrated in Catalonia. Distillation

of wines has been decreasing during the last years, whereas must production
is on the increasing trend.
Apart from being a very important economic sector, wine is a significant
component of the Spanish culture, and the country’s landscape cannot be
understood without its vineyards. There is no other crop in Spain which is
able to represent the huge diversity of the Spanish geography. There are so
many different varieties and geographic conditions that there is an extreme
diversity of wines not well known not only outside the country but also within
Spain. The Spanish wine sector is in a continuous transition from the tradi-
tional culture to an opening to new markets. During the last years, consider-
able efforts have been done to adapt Spanish wines to different consumers’
appreciations in international markets but without losing its original identity.
The strategy is clear, but the road is long and new investments should be car-
ried out.
References
Albisu, L.M., and G. Zeballos. 2014. Consumo de vino en España: tendencias y
comportamiento del consumidor. In La economía del vino en España y en el mundo,
ed. J.S. Castillo and R. Compés, 99–140. Spain: Cajamar Caja Rural.
Castillo, M. 2015a. Vino: Buscando atraer a un consumidor global. Alimarket. November
20. http://www.alimarket.es/noticia/196298/Vinos%2D%2DBuscando-atraer-a-
un-consumidor-global. Accessed 20 Nov 15.
———. 2015b. Lineal de vinos: El consumidor pide calidad. Alimarket. March 26.
http://www.alimarket.es/noticia/179033/Lineal-de-vinos%2D%2DEl-
consumidor-pide-calidad. Accessed 22 Sept 15.
Compés, R., C. Montoro, and K. Simón. 2014. Internacionalización, competitivi-
dad, diferenciación y estrategias de calidad. In La economía del vino en España y en
el mundo, ed. J.S. Castillo and R. Compés, 311–350. Spain: Cajamar Caja Rural.
De la Serna, V. 2013. El desafío de Castilla La Mancha. El Mundo Vino, October 28.
Del Rey, R. 2015. Oral communications of the OeMv. Observatorio Español del
Mercado del Vino.
FADN. 2018. Farm Accounting Data Network. European Commission.
Fernández, E., and V. Pinilla. 2014. Historia económica del vino en España
(1850–2000). In La economía del vino en España y en el mundo, ed. J.S. Castillo
and R. Compés, 67–98. Spain: Cajamar Caja Rural.
INE. 2009. Spanish National Statistics Institute. Spanish Agricultural Census.
———. 2013. Spanish National Statistics Institute. Farm Structure Survey.
———. 2015. Directorio Central de Empresas: explotación estadística (DIRCE).
http://www.ine.es/jaxi/menu.do?type=pcaxis&path=/t37/p201/&file=inebase.
Accessed 21 Sept 15.
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JCCM. 2011. Junta de Comunidades de Castilla La Mancha. Department of

Agriculture, Environment and Rural Development from Castilla-La Mancha.
Estrategia regional del vino y los productos derivados de la uva de Castilla-La
Mancha. Horizonte 2020. http://www.castillalamancha.es/sites/default/files/doc-
umentos/20120511/portada20e20introduccion203.pdf. Accessed 2 July 2015.
Langreo, A., and J.S. Castillo. 2013. Estructuras, organización y modelos empresari-
ales en el sector. In La economía del vino en España y en el mundo. Cajamar Caja
Rural, ed. R. Compés and J.S. Castillo, 141–174 Spain.
MAGRAMA. 2009. Spanish Ministry of Agriculture, Food and Environment. Basic
Vineyard Survey.
———. 2015a. Spanish Ministry of Agriculture, Food and Environment. Surface
and Crop Yields Survey.
———. 2015b. Spanish Ministry of Agriculture, Food and Environment. Economic
Accounts of Agriculture.
———. 2015c. Spanish Ministry of Agriculture, Food and Environment. Agriculture
Yearbooks and Agriculture Statistics (2002–2014).
———. 2015d. Spanish Ministry of Agriculture, Food and Environment. Inventory
of wine-growing potential.
———. 2015e. Spanish Ministry of Agriculture, Food and Environment. Food
Consumption Panel.
———. 2016. Spanish Ministry of Agriculture, Food and Environment. Surface and
Crop Yields Survey.
Maldonado, J. 1999. La formación del capitalismo en el marco de Jerez. De la viti-
vinicultura tradicional a la agroindustria vinatera moderna (siglos XVIII y XIX).
eds. Huerga y Fierro pp 434.
MAPAMA. 2018. Spanish Ministry of Agriculture and Fishery, Food and
Environment. Food Consumption Panel.
OeMv. 2015a. Observatorio Español del Mercado del Vino. Spanish Observatory of
Wine Markets.
———. 2015b. Observatorio Español del Mercado del Vino. Spanish Observatory
of Wine Markets: Spain seventh largest world wine consumer and 33rd in per
capita consumption.
———. 2015c. Observatorio Español del Mercado del Vino. Spanish Observatory
of Wine Markets. March 10, 2015: “Según informe de ICEX España Exportación
e Inversiones, 3.897 empresas exportaron vino en 2014”.
———. 2018. Observatorio Español del Mercado del Vino. Spanish Observatory of
Wine Markets.
OIV. 2018. International Organisation of Vine and Wine. Elements de Conjoncture
Mondiale. April.
PTV. 2012. Agenda Estratégica de Innovación. Plataforma tecnológica del vino. http://
www.ptvino.com/phocadownload/general/Agenda_Estrategica_Innovacion_
PTV.pdf. Accessed 2 July 15.
mmorag@uchile.cl
5
The US Wine Industry
James T. Lapsley, Julian M. Alston, and Olena Sambucci
5.1 Introduction
Among countries, the United States is the world’s fourth largest producer of
wine and the largest consumer and importer (Wine Institute 2015a, b; ITC
2017). Consequently, the structure of the US wine industry is of interest, not
The work for this project was partly supported by the University of California Agricultural Issues
Center and the National Institute of Food and Agriculture, US Department of Agriculture, under
award number 2011-51181-30635 (the VitisGen project). The authors are grateful for this support and
for excellent research assistance provided by Jarrett Hart. Views expressed are the authors’ alone.
J. T. Lapsley (*)
Department of Viticulture & Enology, University of California, Davis, Davis, CA, USA
University of California Agricultural Issues Center, Davis, CA, USA
J. M. Alston
Department of Agricultural and Resource Economics, University of California,
Davis, Davis, CA, USA
Robert Mondavi Institute Center for Wine Economics, University of California,
Giannini Foundation of Agricultural Economics, Berkeley, CA, USA
e-mail: julian@primal.ucdavis.edu
O. Sambucci
Department of Agricultural and Resource Economics, University of California,
e-mail: sloan@primal.ucdavis.edu

https://doi.org/10.1007/978-3-319-98633-3_5
mmorag@uchile.cl
106 J. T. Lapsley et al.
just to Americans but also to wine producers and consumers in many other
countries. This chapter describes the salient features of this fascinating indus-
try throughout the marketing chain from the vineyard through to the final
consumer from an economics perspective and, where possible, in quantitative
terms.
The first main section (Sect. 5.2) describes the winegrape-producing indus-
try—which is predominantly located in California and two other West Coast
states, Washington and Oregon—in terms of the total number and size distri-
bution of firms, patterns of prices, and production. This section draws heavily
on Alston et al. (2015, 2018a, b). Winegrape production is somewhat vertically
integrated with winemaking, but many firms specialize at least to some extent
in either grape production or wine production, as we document. Section 5.3
documents details of US wine production and consumption, including the sig-
nificant roles of exports and imports. The winemaking industry is mostly located
close to where the grapes are grown, although each of the 50 states claims a wine
industry. Details are provided on the total production and the mixture of sizes
and types of firms. Next, Sect. 5.4 describes the unique US wine distribution
system, from the producer (winery) through to the final consumer, created by
the hodgepodge of laws and regulations governing the market as an aftermath
of national Prohibition (1920–1933). Section 5.5 concludes the chapter.
5.2 Winegrapes
In 2016, the United States produced 4.4 million tons of grapes crushed for
wine, with a farm value of $4.1 billion (Table 5.1), and it has accounted for
about 10% of the world’s wine volume in recent years (e.g., Wine Institute
2015a). Of the US total winegrape area of some 250,000 hectares in 2016, four
states accounted for over 94%: California (CA), 80.3%; Washington (WA),
8.6%; Oregon (OR), 3.8%; New York (NY), 1.9%.1 Of these, only New York
is not on the West Coast. The total value of all US farm production in 2016 was
$357 billion from a total of 370.1 million hectares, including $194 billion
worth of crops produced using 157.7 million hectares of cropland (USDA/ERS
2018; USDA/NASS 2012b). Hence, the wine industry contributed 1.1% of
the total value of farm production value (2.1% of crop value), but it did so using
only 0.07% of all land in agriculture (or 0.15% of cropland). Winegrapes are
more important in California, accounting for 8.9% of the value of farm produc-
tion and 2.3% of all land in agriculture (or 6.3% of cropland).
1
Areas of vines and cropland for 2016 in this paragraph are estimated based on areas in 2012, the most
recent census for which data are available at the time of writing.
mmorag@uchile.cl
The US Wine Industry 107
Table 5.1 Characteristics of US wine regions, 2016 data

Crush Total Volume Crush price Value
Region district acreage (tons) ($/ton) ($ millions)
Napa-Sonoma (NS) 3 59,675 226,442 2590 587
4 45,339 153,045 4686 717
Total 105,014 379,487 3435 1304
Central Coast (CC) 7 48,128 268,688 1386 372
8 49,817 224,584 1656 372
Total 97,945 493,272 1509 744
Southern Central 13 77,239 1,265,648 306 388
Valley (SCV) 14 20,980 283,335 298 85
Total 98,219 1,548,983 305 472
Northern Central 9 7218 62,690 584 37
Valley (NCV) 11 74,072 802,122 612 491
12 31,162 372,947 444 165
17 22,087 168,592 621 105
Total 134,539 1,406,351 567 798
Other California 1 17,250 77,951 1542 120
(OC) 2 9420 46,528 1684 78
5 3824 21,281 910 19
6 6858 30,565 1148 35
10 7158 21,467 1371 29
15 684 425 689 0.3
16 1732 4839 1754 8
Total 46,926 203,056 1434 291
California (CA) 482,643 4,031,149 895 3609
Washington (WA) 52,000 270,000 1160 313
Oregon (OR) 23,000 67,000 2140 143
New York (NY) 11,684 54,000 626 34
United States (US) 569,327 4,422,149 927 4099
Sources: Appendix Table 5A in Alston et al. (2018a). Created by the authors using
data from USDA/NASS (2016a, b, 2017, 2018)
Notes: Average weighted prices per ton in California are calculated using total tons
crushed, by crush district. Acreage of winegrapes in NY was calculated by applying
volume of winegrapes as a percentage of total volume to total grape acreage, as
data on winegrape acreage were not available
5.2.1 Production Regions and Varieties Grown
California differs from the other major producing states, and itself contains
several distinct wine production regions that differ in terms of their terrain,
climate, soil types, mixture of varieties grown, and quality of grapes and wines
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produced. Data on production and prices of winegrapes in California are

available in some cases by county (of which there are 58, not all of which grow
winegrapes) and in others by crush district (of which there are 17). Some
crush districts contain several counties or parts of counties. Alston et al.
(2015) organized these data into five regions, defined such that each county
fits entirely into one of the five regions. Treating each of the other significant
wine-producing states (i.e., WA, OR, and NY) as a region, we have eight pri-
mary US wine-producing regions comprising these three plus the five in
California.
Table 5.1 includes some detail on the salient features of the eight main US
wine-producing regions we have identified as they stood in 2016. Several dis-
tinct patterns are apparent in this table, as illustrated in Fig. 5.1. First,
California dominates the national total area, volume, and value of wine pro-
duction. Second, the regional shares differ significantly among measures of
area, volume, and value of production. In particular, the Southern Central
Valley has a much larger share of volume compared with area and especially
value of production, while the Napa-Sonoma region has a much smaller share
of volume compared with area and value of production. These patterns reflect
the relatively high yield per acre (and correspondingly low price per ton) of
grapes from the Southern Central Valley and the conversely low yield and
high price per ton in Napa-Sonoma. In 2016 in Napa County the average
yield was 3.5 tons/acre and the average crush price was $4686/ton, about 15
times the average crush price in the Southern Central Valley where the average
yield was 15.8 tons/acre. The other regions were distributed between these
extremes with higher yields being generally associated with lower prices per
ton.
Within the United States, in 2016 five varieties (Chardonnay, Cabernet
Sauvignon, Merlot, Pinot Noir, and Zinfandel) accounted for over 50% of
the total volume and 60% of the total value of production from the five states
included in Table 5.1. As discussed in detail by Alston et al. (2015), these five
varieties predominate in several of the main production regions—in particu-
lar in the premium price regions within California, as well as in Washington
and Oregon—but the emphasis varies among the premium price regions and
some regions are quite different. In particular, the hot Southern Central Valley
(dominated by French Colombard and Rubired used to produce grape juice
concentrate as well as bulk wine) and New York (dominated by non-vinifera
American varieties, Concord and Niagara) are quite unlike the other regions
climatically and in terms of their grape varietal mix.
Chardonnay is the most important variety in terms of total bearing area
nationally and is highly ranked throughout the premium regions, but the
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Area by Region
NY
OR
WA SCV
Other
NCV
CC
NS
Volume by Region
NY
Other OR
WA
NS SCV
CC
NCV
Production Value by Region

NY
OR
Other
WA NS
SCV
CC NCV
Fig. 5.1 US wine regions—area, volume, and value of production, 2016. (Source:
Created by the authors using data from USDA/NASS 2016a, 2016b, 2017, 2018)
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Napa-Sonoma region is especially known for its Cabernet Sauvignon, which

is its most important variety and increasingly so, and likewise in Washington.
The cooler coastal regions—in particular Oregon and the Central Coast of
California—are relatively specialized in Chardonnay and Pinot Noir and
other cool climate varieties. Zinfandel is more significant in the Northern
Central Valley and other mid-price regions, and these patterns reflect this
variety’s dual roles in serving as both a premium red varietal wine and as
lower-priced “blush” (white zinfandel) wine.
Prices vary systematically among regions—the Napa-Sonoma region has
generally higher prices than other regions for all varieties, and the Southern
Central Valley has generally lower prices. In addition, prices vary systemati-
cally among varieties—among the higher-quality (higher-priced) varieties
grown in significant quantity, Cabernet Sauvignon generally is ranked higher
than Chardonnay, and Zinfandel generally is ranked lower. But the sizes of
the premia, and even the rankings of varieties, vary among regions. For exam-
ple, Pinot Noir ranks above Cabernet Sauvignon almost everywhere, but not
in Oregon where Pinot is by far the dominant variety, nor in the Napa-
Sonoma region; Chardonnay is ranked above Cabernet Sauvignon in the
Central Coast region.
Because grape-growing location has become recognized as an important
element of perceived wine quality, the vineyard location is often identified on
the wine label. Prior to 1983, wineries could only use geopolitical locations,
such as counties or towns, on labels. In 1983 the Federal Government
responded to industry desire to place more precise vineyard locations on wine
labels by creating a new type of location, the so-called American Viticultural
Areas (AVAs—see US Treasury/TTB 2013). AVAs are defined geographic
areas that may be quite large and cross state or county lines, or may be quite
small and lie within a county or, in some cases, another AVA. The Napa Valley
AVA is, for instance, a large AVA located within Napa County. The Oakville
AVA is a much smaller AVA that is located within the Napa Valley AVA. In
contrast, the Carneros AVA is a defined AVA in the southern portion of Napa
and Sonoma Counties. Today, wineries may identify the grapes used in a wine
as coming from an AVA if 85% of the grapes were grown in the AVA.
5.2.2 Size Distribution and Nature of Firms
Equivalent data are not available for every state, but some detailed data on the
size distribution and nature of grape-producing firms are available for
California, which accounts for four-fifths of US winegrape production
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Table 5.2 California: total grape area and number of grape-producing farms, 2012
Total grape area
Geographic area Farms Acres Acres/farm
Napa-Sonoma 3148 113,128 35.9
Central Coast 1286 131,448 102.2
Southern Central Valley 3141 463,380 147.5
Northern Central Valley 1489 176,826 118.8
Other CA 2398 54,819 22.9
California State Total 11,462 940,177 82.0
Source: Table 2 in Alston et al. (2018a). Created by the authors using data from USDA/
NASS (2012a)
(Table 5.2). In 2012, California had 11,462 farms that grew grapes. The total
area (including nonbearing vines) was 940,177 acres planted to grapes, an
average of 82 acres per farm. These statewide average figures mask some varia-
tion among regions, and they also include grapes intended for grape juice,
table grapes, and (dried) raisin production—all in the Southern Central
Valley. Of the total of 463,380 acres of vines in the Southern Central Valley,
an estimated 128,449 acres would have been devoted to wine production.2 In
the Central Valley—with its higher yields and lower prices per ton—wine-
grape production generally is conducted at a larger scale compared with the
Coastal regions, especially Napa-Sonoma, with an average of 36 acres of wine-
grapes per producer. Not surprisingly, growers in California’s Central Valley
have mechanized, adopting mechanical pruning and harvesting at a higher
rate than coastal growers, who generally continue to rely on hand labor for
many operations. Over 80% of California’s winegrapes are harvested by
machine. Machine pruning is less widely adopted (Dokoozlian 2013).
Table 5.3 contains more information on the size distribution of grape pro-
ducers in terms of area planted to grapes—again, including all end uses of
grapes, not just wine. As is typical of farm-size distributions, this distribution
is heavily skewed to the right. The vast majority of grape producers have rela-
tively small vineyards and, while the average area is 80 acres of vines, the
median is closer to 15 acres. Reflecting this skewedness, the roughly 50% of
growers who had less than 15 acres of vines collectively accounted for less than
2% of the total vineyard area, while the 89 (less than 1%) growers who had
1500 acres or more were responsible for almost 30% of the total area. More
than half the total vineyard area is on farms with 500 or more acres of vine-
2
The percentage of winegrape acreage for the Southern Central Valley region in 2012 was estimated using
the California acreage report (USDA/NASS 2012d) and applied to the total acreage for 2012 from Table 2
in Alston et al. (2018a).
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Table 5.3 California: size distribution of grape producers, 2012

Total bearing and
nonbearing vines Cumulative total
Size range Farms Acres Acres %
0.1–0.9 acres 1357 450 450 0.05
1.0–4.9 acres 2509 5525 5525 0.59
5.0–14.9 acres 2165 18,345 18,345 1.95
15.0–24.9 acres 1374 25,673 25,673 2.73
25.0–49.9 acres 1340 47,004 47,004 5.00
50.0–99.9 acres 1094 75,613 75,613 8.04
100.0–249.9 acres 907 139,156 139,156 14.80
250.0–499.9 acres 359 123,336 123,336 13.12
500.0–749.9 acres 122 74,500 74,500 7.92
750.0–999.9 acres 71 60,783 60,783 6.47
1000.0–1499.9 acres 75 91,412 91,412 9.72
1500.0 acres or more 89 278,382 278,382 29.61
All Farms 11,462 940,177 940,179 100.00
Source: Table 3 in Alston et al. (2018a). Created by the authors using data from USDA/
NASS (2012c)
yard. Of course, and as noted above, these distributional figures for the state-
wide industry as a whole will not be equally representative of all segments. In
particular very large vineyards are much more likely to be found in the Central
Valley than in the premium coastal valleys where land values are very much
higher.
California includes a diverse mixture of production models. A vineyard
may be vertically integrated with a winery, in a single enterprise, or the two
enterprises may be entirely separate. In some cases a winery may crush and
bottle only estate-grown fruit while, next door, a vineyard sells all its produc-
tion to a winery somewhere else. Because grape growing and wine production
are often separate businesses in California, most wineries contract with grape
growers. Goodhue et al. (2003) reported that 90% of California growers sold
grapes under contract and that 10% of contracts were pre-planting contracts
in which the winery contracted to purchase grapes from a not-yet-established
vineyard. Production models vary from region to region within California,
and Table 5.4 provides details, district by district, of the balance between pur-
chased, custom crush, and own tons crushed by wineries. For the state as a
whole, only 15% of tons crushed were own-grown, the vast majority were
purchased. This pattern was even more pronounced in the Southern Central
Valley where only 5% of the crush was own fruit. In the premium coastal
regions, the share of own-grown fruit was closer to 40% of the total crush.
Some wineries may have a cellar door from which they sell at retail whereas
others may leave the retailing to others. Reflecting this diversity, California has
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an active market for winegrapes—whether under contract or for spot sales—as

well as markets for bulk wine and bottled wine. Particular sizes of vineyards—
depending on the location and market segment to be served—are more or less
appropriate for these different business models. Some wine businesses in
California are engaged in every aspect, growing grapes, making wine, offering
custom crush and winemaking services, importing and exporting bulk or pre-
mium wine, and providing cellar door experiences at boutique winery estates.
5.3 Wine Production and Consumption

The quantity of wine consumed in the United States has increased every year
for the past 20 years, almost doubling from 464 million gallons in 1995 to
949 million gallons in 2016 (Wine Institute 2018). This expansion is a result
of both population growth and an increasing rate of adult per capita con-
Table 5.4 Characteristics of California winegrapes crushed, 2016

Own tons/
Crush Total tons Tons Custom Own tons total tons
Region district crushed purchased crush crushed crushed
Napa-Sonoma 3 226,442 144,846 1618 79,979 0.35
(NS) 4 153,045 89,402 3190 60,453 0.40
Total 379,487 234,248 4807 140,432 0.37
Central Coast 7 268,688 172,141 787 95,760 0.36
(CC) 8 224,584 158,251 10,011 56,322 0.25
Total 493,272 330,392 10,798 152,082 0.31
Southern 14 283,335 268,317 59 14,959 0.05
Central 13 1,265,648 1,210,224 213 55,211 0.04
Valley (SCV) Total 1,548,983 1,478,541 273 70,170 0.05
Northern 9 62,690 35,429 1037 26,224 0.42
Central 11 802,122 729,455 3314 69,353 0.09
Valley (NCV) 12 372,947 274,361 1096 97,490 0.26
17 168,592 148,460 991 19,141 0.11
Total 1,406,351 1,187,705 6438 212,208 0.15
Other 10 21,467 14,714 447 6306 0.29
California 15 425 152 110 164 0.38
(OC) 16 4839 2145 221 2473 0.51
1 77,951 53,736 9627 14,588 0.19
2 46,528 33,919 3660 8949 0.19
5 21,281 18,077 587 2617 0.12
6 30,565 20,359 960 9246 0.30
Total 203,056 143,102 15,612 44,342 0.22
California (CA) 4,031,149 3,373,988 37,928 619,233 0.15
Source: Created by the authors using data from USDA/NASS (2016a)
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sumption. Both trends are expected to continue and the volume of US wine
consumption is predicted to increase by 50% by 2030 from a 2010 base
(Lapsley 2010). US growth trends stand in marked contrast to declines in
volume of wine consumed in France, Italy, and Spain (OIV 2015). It is no
surprise that many suppliers, both domestic and foreign, are focused on the
US market.
5.3.1 Domestic Production and Consumption
In the United States, wine is defined as the product of the fermentation of

fruits, predominantly grape, into an alcoholic beverage. Because alcohol is
taxed in the United States, wine production is regulated at the Federal level by
a bureau of the Department of the Treasury, the Alcohol and Tobacco Tax and
Trade Bureau, generally known by its last three initials as the “TTB.” The
TTB licenses alcohol producers, including wineries, receives tax payments
from producers and importers, approves wine labels, and publishes monthly
and annual production statistics. Wine producers file reports of production
and sales and make tax payments to the TTB. The frequency of such reports
depends upon the amount of tax liability, but every producer files at least once
a year. The information from producers is summarized each month by the
TTB, along with an annual report. These reports are available online at http://
www.ttb.gov/wine/wine-stats.shtml. Much of the data presented in this sec-
tion is derived from TTB annual statistics. Wine producers are also licensed
by the states in which they operate, and state requirements for production and
licensing differ from state to state, a topic that is covered in greater detail in
Sect. 5.4.
Wines are taxed at different rates, depending upon wine type, alcohol con-
centration, and volume of production. Still wines are defined as wines con-
taining less than 0.392 grams of carbon dioxide per 100 milliliters. Still wines
with 0.5–16% alcohol by volume pay a Federal tax ranging from $0.07 per
gallon for production volumes below 30,000 gallons up to $1.07 per gallon
for volumes over 750,000 gallons. Wines with alcohol concentration of
16–21% pay $0.57 per gallon for production below 30,000 gallons and $1.57
per gallon for production over 750,000 gallons. Wines with alcohol concen-
trations over 21% but under 24% incur a tax of $2.15 per gallon when pro-
duced in volumes under 30,000 gallons up to $3.15 per gallon for production
over 750,000 gallons. Wines containing carbon dioxide above the limit for
still wines are referred to by the TTB as “effervescent” and are grouped into
two categories: Artificially carbonated, which pays a tax of between $2.30 and
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$3.30 per gallon, and naturally carbonated, which is taxed between $2.40 and
$3.40 per gallon (U.S. Treasury/TTB 2016a) depending upon volume pro-
duced. These tax rates are for calendar years 2018 and 2019 and may change
depending upon Congressional action (or inaction).
The TTB figures for production of still wines include wines made from
fruits other than Vitis vinifera and from non-vinifera grapes. “Wine” pro-
duced from apples is called “hard cider” and is taxed between $0.164 and
$0.226 cents per gallon depending upon the volume produced. Hard cider is
listed separately from other still wines in TTB reports, but non-vinifera wine
is not reported separately. Although we have no way of knowing the exact
volume of non-vinifera wines, we do know that wines produced in California
are made from Vitis vinifera and represent about 85% of all wine produced in
the United States.
Still wine accounts for the vast majority of domestically produced and bulk
imported wine that is bottled and consumed in the United States, although
smaller volumes of other types of wine are produced, and about 10–11% of
production is used for distillation. According to 2016 TTB data, over 604
million gallons of still wine were bottled and removed after payment of tax for
domestic consumption. This represented 82.6% of the approximately 708
million gallons of domestically bottled wine.3 Cider accounted for 6.5% of
total volume, effervescent wine was 3.9%, flavored wines, such as vermouth,
and wine coolers totaled 3.4% and 3.5%, respectively (Fig. 5.2).
In the past decade, the volume of domestically bottled wine (including
cider) tax-paid into the US market has increased by almost one-third, from
just over 527 million gallons in 2005 to over 700 million gallons in 2016.
Cider consumption increased more than eightfold, growing from 4.8 million
gallons to 47.5 million gallons. Still wine grew by almost one-third during the
same period, while wine cooler volume declined. Table 5.5 shows volumes by
type of wine removed tax-paid in 2005 and 2016, and the percentage change.
We assume tax-paid bottled wine is intended for the US market because
exported wine does not pay Federal tax.
The vast majority of wine produced in the United States is produced in
California. In 2016, the TTB reports approximately 806.4 million gallons
of still wine produced in the United States, with California responsible for
680.3 million gallons, or 84.3%. New York State, with 27.9 million gal-
lons, and Washington State, with 40.7 million gallons, are second and third
The term “removed” here refers to removal of the product from a bonded warehouse, as it enters com-
3
merce and, if it is destined for domestic sale, incurs excise tax.
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3.4% 3.5%
3.9%
6.5%
Still wine
Cider
Effervescent
Flavored Wines
Wine Coolers
82.6%
Fig. 5.2 Volume shares (%) of tax-paid, domestically bottled wine, by wine type, 2016.
(Source: Created by the authors using data from US Treasury/TTB 2016c)
Table 5.5 Gallons of bottled wine removed tax paid into US market
2005 2016 Percentage change
Wine type Millions of gallons Percent
Still wine 457.2 604.2 32.2
Cider 4.9 47.5 867.3
Effervescent 19.4 28.6 47.4
Flavored wines 15.8 25.0 58.2
Wine coolers 30.3 25.8 −14.9
Total taxable removals 527.6 731.0 38.6
Source: Table 7 in Alston et al. (2018a). Data are from Treasury/TTB (2005, 2016c).
Percentage calculations by authors
in production. All of California’s and Washington State’s wine production

is from V. vinifera grape varieties, while New York State’s production
includes fruit wines and wines produced from native grape species and
hybrids.
The increase in US demand for wine is reflected in an increase in the num-
ber of wineries, which has more than doubled in the past decade. In 2004
there were 4325 wineries in the United States, with 2059 located in
California, but by 2014 the number of US wineries had increased to 10,417,
with 4285 located in California. Other major states with wineries are
Washington State, 989; Oregon State, 580; and New York State, 481.
However, every state has a few wineries and produces some wine
(U.S. Treasury/TTB 2016b).
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Although over 10,000 wineries are operating in the United States, a hand-
ful of large wineries dominate production and distribution of wine. Over the
past 20 years, the largest US wine producers have become marketers of wine
as well as producers, importing bulk wine to be bottled under their own
brands, and importing and distributing bottled wines from foreign producers.
It is estimated by industry analysts that in 2014, the three largest US wine
producers, E & J Gallo, The Wine Group, and Constellation Brands, together
produced or imported approximately half of all wine sold in the United States.
The top ten producers accounted for over 80% of US sales, and the top 30 are
estimated to be responsible for approximately 710 million gallons of the 769
million gallons of wine consumed in 2014, or 92% of sales (Wine Business
Monthly 2015; Wine Institute 2018), leaving 59 million gallons to be sup-
plied by the remaining smaller firms. These indicative figures impart a sense
of the concentration within the US industry.
Since the TTB does not release production data at the firm level, it is not
possible to report precise figures of production volume by wineries. However,
given that there were more than 10,000 wine producers in 2014 and having
estimated that US total wine consumption, after subtracting sales by the top
30 wine firms, was approximately 59 million gallons (which includes imported
bottled wine not sold by the largest firms), it follows that the typical US win-
ery is very small, perhaps producing 5000 gallons of wine. This conclusion is
reinforced by an examination of wine production by region within California.
Using TTB data of California wine producer and blender permit holders at
the end of 2015, we sorted wineries by production region. Then, for each
region, we computed its share of California’s total grape tonnage in 2016 and
its share of the total number of California wineries in 2015. Results are shown
in Table 5.6.
As noted in Sect. 5.2, California’s Northern and Southern Central Valley
vineyards (crush districts 9, 11, 12, 13, 14, and 17) produce approximately
70% of California’s winegrapes. However, this productive grape-growing
region has only 9% of California’s wineries. Central Valley wineries are quite
large and efficient, processing almost 3 million tons of grapes in 2016 and
producing inexpensive wine retailing at under $8 per bottle, which accounts
for a large share of all table wine sales. More than 70% of California’s wineries
are located in coastal areas (crush districts 1–8); yet, collectively, these areas
produced just 26% of all California winegrapes in 2016. For the most part,
these coastal wineries, along with wineries in California’s Sierra Nevada foot-
hills, are quite small, each producing small quantities of more expensive wines.
Wines consumed in the United States retail at a variety of prices and labels
often bear information on varietal content as well as where the grapes used to
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Table 5.6 Share of all California wineries (2015) and tons crushed (2016) by region
Number of Share of tons Share of
Crush Volume licenses crushed licenses
Region district (tons) (number) (percentage) (percentage)
Napa-Sonoma 3 226,442 785 5.6 20.3
(NS) 4 153,045 959 3.8 24.7
Total 379,487 1744 9.4 45.0
Central Coast 7 268,688 106 6.7 2.7
(CC) 8 224,584 719 5.6 18.6
Total 493,272 825 12.2 21.3
S. Central Valley 14 283,335 16 7.0 0.4
(SCV) 13 1,265,648 52 31.4 1.3
Total 1,548,983 68 38.4 1.7
N. Central Valley 9 62,690 112 1.6 2.9
(NCV) 11 802,122 141 19.9 3.6
12 372,947 14 9.3 0.4
17 168,592 17 4.2 0.4
Total 1,406,351 284 34.9 7.3
Other California 10 21,467 255 0.5 6.6
(OC) 15 425 39 0.0 1.0
16 4839 224 0.1 5.8
1 77,951 115 1.9 3.0
2 46,528 49 1.2 1.3
5 21,281 24 0.5 0.6
6 30,565 248 0.8 6.4
Total 203,056 954 5.0 24.7
California (CA) 4,031,149 3875 100.0 100.0
Source: Data from USDA/NASS (2016a), US Treasury/TTB (2015). Percentage
calculations by authors
produce the wine were grown. Price and varietal information is generally
derived from UPC (bar code) labels that are scanned by retailers, who then
sell their data to consumer research firms such as IRI or Nielsen, which then
collate and clean the data for resale to producers and others. Scanner data
represent perhaps 50% of US wine sales by volume and do not include infor-
mation from major retailers such as Costco or Walmart, or from restaurants
and bars, which retail approximately 25% of all alcoholic beverages by v olume.
Although scanner data do not represent the entire universe of wine sales in
the United States, they do provide information on the US marketplace for
wine. In 2014, according to Nielsen data, 70% of all table wine tracked by
Nielsen, both domestically produced and imported, sold for under $8 per
bottle, while approximately 4.7% retailed at above $15 per bottle (Penn
2015). These numbers differ somewhat from those supplied by industry ana-
lyst, Jon Fredrikson, who focuses on California wine sold in the United States.
Fredrikson (pers. comm. 2016) estimates that in 2015, 52% of California
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wine retailed for under $7 and that 15% retailed at above $14 per bottle. The
discrepancies are probably the result of comparing different years, different
data sources, and the inclusion of imported wine in the Nielsen data.
Wines sold in the United States may bear a varietal designation on the label
if 75% or more of the wine was produced from the named grape variety.
Nielsen data for table wine sales for the 52 weeks ending in October 2015
show that approximately 85% by value carried a varietal label. Chardonnay, at
19%, and Cabernet Sauvignon, at 16%, were the two most popular varieties,
followed by Pinot Grigio, Pinot noir, Merlot, and Sauvignon blanc, which
collectively accounted for 28% of the value of table wine sold in the United
States. In 2015, red wine represented just over 50% of Nielsen tracked wine
sales by value, followed by white wines at 43% of value, and rose or blush
wines at 6% (Wine Business Monthly 2016).
5.3.2 Imports and Exports
The United States consumes more wine than it produces, but even though a
net importer, the country exports significant quantities of wine: For the past
decade approximately 100 million gallons each year, a bit over 10% of its total
production in 2016, if distilling material is included. Hence, the United
States is a major importer of wine, and for the past decade, approximately
one-third of all wine consumed in the United States has been imported.
Figure 5.3 shows the volumes and values of imported and exported wine of all
types by year.
The share of imported wine in total consumption has increased slightly
over the past decade, but the increase in import volume has been primarily in
inexpensive bulk wine, rather than in bottled wine. In 2005, US wineries
imported 10.3 million gallons of wine in containers larger than 4 liters, a
volume that represented approximately 6% of all imported wine. By 2016
bulk wine imports had grown to 70.5 million gallons, accounting for almost
25% of all imported wine volume. During the same period, bottled wine
imports increased by 31%, from 176 million gallons in 2005 to 240 million
gallons in 2016 (ITC 2017).
The growth in volume of imported bulk wine has become an issue for
winegrape growers in California’s southern Central Valley. Their concern has
centered on a trade policy referred to as “drawback,” which allows an importer
to recapture up to 99% of taxes paid on imported goods when goods defined
as “interchangeable” are exported. In 2003, the US Bureau of Customs and
Border Protection allowed drawback on imported wine for the first time and
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350 6
300
5
Billions of 2015 U.S. Dollars

250
4
Millions of gallons
200
3
150
2
100
1
50
0 0
Exports Volume Imports Volume Exports Value Imports Value
Fig. 5.3 Volume and value of US imports and exports of wine, 1966–2015. (Source:
Fig. 5 in Alston et al. (2018a). Data are from ITC (2018). Notes: Nominal monetary val-
ues in these graphs were deflated by the consumer price index (CPI) for all goods taken
from USDL/BLS 2015)
defined interchangeable wine as wine under 14% in alcohol, of the same

color, and within 50% of value. Such tax refunds could be as high as $1.60
per gallon for wines imported in large containers from countries without free
trade agreements. Since prices of bulk wine imported into the United States
have ranged around $3.80 per gallon for the past decade, the incentive is
strong and the potential drawback is significant. Some Central Valley grape
growers fear that drawback encourages California wineries to import increased
quantities of bulk wine, rather than to purchase California grapes. However,
Sumner et al. (2012) concluded that when imports exceed exports, the draw-
back policy encourages exports, which should increase demand for California
grapes. Bulk import volumes have exceeded bulk export volumes since 2011.
The United States exports both bottled and bulk wine. While the volume
of exports increased by just 8.5%, from 91.0 million gallons in 2005 to 98.7
million gallons in 2016, the value of exported wine increased by over 130%,
from $606 million dollars in 2005 to $1.5 billion in 2016. The United
Kingdom is the single largest importer of US wine and took 32% of all US
wine exports by volume. However, most of the UK import volume is shipped
in bulk and at a low price of $11 per gallon. By value, Canada is the most
important importer of US wine, buying bottled wine at an average price of
over $21 per gallon and receiving more than 18% of US wine exports by vol-
ume in 2016. Over the past decade, China has emerged as a major market for
US wine, growing from just over 1 million gallons in 2005 to over 6 million
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gallons in 2016. Most of this is bottled wine at an average price of over $27
per gallon (ITC 2017). Although volume and value of wine exported have
increased in the past ten years, it seems that most US producers are focused
more on the expanding domestic market than on export opportunities.
5.4 Distribution
In 2018, the United States was the largest national wine market in the world
in value and in volume. Yet, despite its name, as a market the United States is
hardly “united” and from a wine marketing perspective is better considered as
51 different entities consisting of 50 states and the Federal District of
Columbia. As a legacy of the American experiment with Prohibition from
1920 to 1933, each state has the constitutional power to regulate the produc-
tion, importation, and sales of alcoholic beverages within its borders. This has
resulted in significantly different systems of distribution and sales from state
to state. For instance, in Utah, the State acts as the sole importer and retailer
of alcoholic beverages. In contrast, other states license private importers,
wholesalers, and retailers to distribute and make retail sales.
Other differences among states abound. Some states, such as New York, do
not allow sales of alcoholic beverages in stores that sell foods. Other states,
such as Oregon, allow private licensed distribution of beer and wine but act as
distributors of distilled beverages sold in the state. Some states, such as Ohio,
require that suppliers post wholesale prices with the state prior to selling to an
Ohio distributor. This price posting, along with mandated markups for dis-
tributors and retailers, results in no discounting or price competition among
retail stores. Other states, such as Colorado, allow only one license per busi-
ness entity, which precludes chain retailing of alcoholic beverages. Because of
these differences among states, wine suppliers, whether domestic producers or
importers, must treat each state as a separate sales environment. For this
reason, a uniform system of wine marketing and distribution across the
United States is essentially impossible for wine producers and importers.
National Prohibition, which prohibited the commercial production, distri-
bution, and sale of alcoholic beverages, was enacted by Congress in 1917 as
the 18th Amendment to the US Constitution. As with all Constitutional
amendments, after approval by two-thirds of Congress, it required ratification
by three-quarters of the states. The 18th Amendment was ratified in January
1919, and Prohibition became effective a year later, on January 16, 1920 (Seff
and Cooney 1984). By the late 1920s, many observers believed that national
Prohibition was a failure, having led to illegal alcohol sales and the rise of
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organized crime. However, the overturning of the 18th Amendment required

a new Constitutional amendment, which needed both a two-thirds approval
by Congress, and ratification by 36 of the then 48 states. At the time, more
than 12 states opposed the repeal of Prohibition, which effectively blocked
repeal. In 1932, a compromise was reached.
The 21st Amendment was passed by Congress in February 1933 and rati-
fied by the states in December of that year. The political price of the compro-
mise is found in section two of the 21st Amendment which states that “The
transportation or importation into any State, Territory, or possession of the
United States for delivery or use therein of intoxicating liquors, in violation of
the laws thereof, is hereby prohibited.” The 21st Amendment thus essentially
grants to each individual state the ability to control the sale of alcoholic bever-
ages however it wishes, up to and including the prohibition of sales, although
states cannot discriminate between alcoholic beverages produced in state or
out of state, as such discrimination violates the “Commerce Clause” of the
Constitution.
In 1933, following Repeal of Prohibition, each state had to determine how
it would tax and control the production, distribution, and sales of alcoholic
beverages. At Repeal, the main concerns for state governments were to collect
state alcoholic excise taxes and to encourage “temperance” by controlling who
could enter the new marketplace, by regulating the hours and locations of
sales, and by separating production and distribution from retailing (Mendelson
2009). Approximately 20 states became what are referred to as “control”
states, where the state became the importer and retailer for alcoholic bever-
ages. Today, following a policy change in Pennsylvania in June 2016, Utah
remains as the only control state where all wholesaling and retail sales are
performed by the state. Most of the other original control states have retained
some form of state wholesaling and sales for spirits but now allow wine and
beer to be imported, distributed, and sold by companies licensed by the state.
The majority of the states at Repeal did not choose the control model but
rather created state governmental agencies, often referred to as Alcoholic
Beverage Commissions (ABCs), which set conditions for retail sales and
licensed producers, wholesalers, and retailers.
Regulation of production, distribution, and sales varies greatly among
states. California, the major wine-producing state, allows licensed wine pro-
ducers to act as producers, wholesalers, and retailers, although limiting the
number of retail locations allowed to a wine producer. Over the past two
decades, as wine production has expanded in other states, state governments
have encouraged domestic wine production by amending laws to allow their
in-state wineries, under restricted conditions, to sell directly to retailers and
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consumers. However the general case is that, in most states, out-of-state wine
suppliers (either domestic producers or importers of foreign wines) must
acquire licenses from the state ABC and then must sell to in-state wholesalers
licensed by the state ABC. These wholesalers pay state excise taxes for wine
imported into the state and maintain inventory for sale to state licensed retail-
ers. Licensed retailers then sell to consumers. This system is referred to as the
“three-tier” system, with the first tier being the supplier, the second tier being
the wholesaler, and the third tier being the retailer.
The three-tier system places at least two business entities between a supplier
and the end consumer. The system also requires that, in most instances, sup-
pliers must have a business relationship with at least one wholesaler in every
state in which the supplier desires to sell wine. A cursory examination of the
listing of wholesalers at the TTB web site (U.S. Treasury/TTB 2015) shows
over 19,000 licensed wholesalers across the 50 states. But this number is quite
misleading, as each wholesale location requires a separate license, and the
19,000 licensees are not distinct firms. Most wholesalers are quite small busi-
nesses that serve a limited geographic area within a state, but in every state
and nationally, distribution of alcoholic beverages is dominated by a handful
of large wholesalers.
Industry analysts indicate that in 2017 the four largest wholesalers of alco-
holic beverages accounted for approximately 55% of all wholesale sales (Wines
and Vines 2017). Wholesaler consolidation is an ongoing trend that will
probably continue because distribution of alcoholic beverages exhibits econo-
mies of scale. Table 5.7 lists the top four wholesalers in the United States, all
of which are multibillion dollar companies and all the result of recent merg-
ers. The top wholesaler, Southern Glazers, was created in 2016 when Southern,
the largest distributor, merged with Glazers, then the fourth largest. Breakthru
Beverage had been created a year earlier when Wirtz Beverage merged with
New York-based Chalmers Sunbelt. Republic National Distributing Company
was the result of a 2007 merger of Republic Beverage Company and National
Distributing Company. Most recently in November 2017, the numbers 2 and
3 wholesalers, Republic National and Breakthru Beverage, announced their
intention to merge operations in 2018 (Marsteller 2017) although as of this
writing, the merger has not yet occurred.
When a domestic wine producer or importer has distribution with a com-
pany such as Southern Glazers or Republic National Distributing Company, the
supplier can be assured of geographic reach for its products. However, the
supplier will also be one of hundreds, perhaps thousands, of suppliers, each
vying for attention from the large distributor. In a national sales environment
with over 9000 domestic producers, the reality is that most individual suppli-
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Table 5.7 Four largest US alcoholic beverage distributors, 2014

Estimated revenue Market share by Total states covered
Company ($ billions) revenue (%) (number)
Southern 16.5 29.0 41
Glazers
Republic 6.5 11.4 22
National
Breakthru 5.4 9.4 16
Beverage
Young’s Market 3.0 5.2 11
Co.
Source: Wines and Vines (2017)
ers are not in a position to choose a distributor in a given market. Rather, the
distributor chooses the supplier. Without a licensed distributor, it is difficult
for a supplier to sell more than a few cases of wine in a given market.
Because of the inherent difficulty in securing distribution in every state,
some suppliers might decide to focus on one or two states or metropolitan
markets rather than to pursue national distribution. States differ greatly in
total population as well as rates of per capita consumption; hence the volume
of wine consumed varies tremendously from state to state. Table 5.8 lists the
top ten wine-consuming states in 2016, showing each state’s wine consump-
tion in thousands of gallons and as a share of total US wine consumption. In
2016, the top five wine-consuming states consumed 42% of all wine con-
sumed, and the top ten states almost 60% of all wine sold in the United
States. Collectively, in 2016 these top ten states consumed 526 million gal-
lons, which, if they were a country, would put them in fifth place, behind
Germany and ahead of the United Kingdom (Wine Institute 2015b). Clearly,
a wine supplier does not need to pursue national distribution in order to sell
significant volumes of wine in the United States. But it is equally true that
most suppliers focus on states with high volumes of wine consumption, mak-
ing those markets quite competitive.
State laws also affect where wine is sold, making it less meaningful to speak
of national trends. In those states where wine can be discounted and can be
sold in chain grocery stores, large retailers such as Costco and Walmart have
gained market share. These retailers use their purchasing power to negotiate
lower purchase prices, and this, combined with efficient store management
and scale, which allow lower operating margins, enables them to offer lower
prices to consumers. But some state sales environments are not conducive to
large chain retailers. The states of New York and New Jersey, the third and
fourth largest wine markets by volume in the United States, do not allow wine
to be sold in grocery stores. Retailers in these states must choose between sell-
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Table 5.8 Top ten wine-consuming states in 2016

State Gallons (thousands) Share (%)
California 148,347 16.5
Florida 71,538 8.0
New York 67,598 7.5
Texas 59,177 6.6
Illinois 35,041 3.9
New Jersey 34,027 3.8
Massachusetts 28,934 3.2
North Carolina 28,085 3.1
Pennsylvania 27,230 3.0
Virginia 26,246 2.9
Top ten total 526,223 58.6
US total 898,700 100.0
Source: Haughwout et al. (2018)
ing groceries and selling alcoholic beverages. Some states, such as Ohio, do
not allow distributors to offer price discounts to retailers based on volume
purchases, thus negating the purchasing power inherent in chain retailing, at
least for alcoholic beverages. Other states, such as Colorado and Massachusetts,
limit the number of retail locations per license holder, thus reducing the
potential for chain retail sales.
The reduction of costs in supply chains has been a major force in business
modernization for at least two decades. However, the current alcoholic bever-
age supply chain in the United States is entrenched in state law and efforts to
bypass the three-tier system have met with little success, although there have
been some changes. In 2005, the US Supreme Court reviewed Michigan and
New York laws that allowed in-state wineries to make direct shipments to in-
state consumers, but disallowed that privilege to out-of-state wineries. In a 5
to 4 decision in Granholm v. Heald, the Court found that states could not
discriminate between in- and out-of-state producers, thus opening the door
for direct shipments from winery to consumer (Mendelson 2009).
Although this decision has legalized the possibility of direct shipments to
many states, the reality is that states can legally require registration fees, pay-
ment of excise taxes, and reporting requirements that, while in aggregate are
reasonable expenses for in-state wineries with significant volumes of direct
sales, become prohibitively expensive for an out-of-state winery that is ship-
ping only a few cases per month to a particular state. Shipping costs for a few
cases are also significantly higher than for truckloads of wine. Although direct
shipping of wine and the bypassing of the three-tier system may widen the
range of consumer choice, direct shipping still represents a very small percent-
age of wine sales in the United States. In 2014, nine years after the Granholm
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decision, approximately 4 million cases were direct shipped to consumers,

which represents just over 1% of wine consumption in that year (Gordon
2015; Wine Institute 2018).
The United States is an attractive market for wine producers because it is
large, lucrative, and still growing with a significant demand for premium
wines as well as lower-priced wines. However, the effect of America’s experi-
ment with Prohibition is still felt in the marketplace in the form of the three-
tier system of distribution. The sale of more than a few cases of wine in a state
functionally requires that a supplier have an agreement with an in-state whole-
saler. Consolidation of distributors coupled with an increasing number of
suppliers makes distribution one of the key challenges for domestic and for-
eign wine producers desiring to sell wine in the United States.
5.5 Conclusion
This chapter has reviewed winegrape growing and wine production, distribu-
tion, and consumption in the United States. The industry is concentrated in
the western United States, dominated by California, which produces four-
fifths of the total. Nationally, winegrape growing is relatively unimportant
when compared with commodities such as corn or soybeans, and winegrapes
are best understood as a high-value specialty crop, whose high prices are
driven by an increasing demand for wine on the part of American consumers.
This increased demand has been met by expansion of vineyard acreage across
the United States, by increased importation of bulk and bottled wine, and by
a doubling of the number of US wineries over the past decade. Although the
experiment with Prohibition has left a legacy of patchwork laws throughout
the nation, making wine distribution cumbersome and costly, increased
consumer demand for wines of all types is forcing changes in distribution.
These changes, coupled with increased rates of per capita consumption and
population growth, should insure that the United States remains the world’s
major wine-consuming country for the first half of the twenty-first century.
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mmorag@uchile.cl
6
The Australian Wine Industry
Kym Anderson
6.1 Introduction
Vines were planted in Australia as soon as Europeans first settled in 1788, but
for the next 50 years they were used to produce table grapes and wine mostly
for family, friends, and neighbors. During that time rum and other spirits,
plus beer, were the dominant alcoholic beverages. Commercial wine produc-
tion only began in the 1840s, but it accelerated when a gold rush led to the
trebling of Australia’s non-aboriginal population in the 1850s.
Despite having favorable wine-growing conditions, Australian wine exports
were insignificant before the mid-1860s, net export status was not achieved
until the 1890s and it took until the 1970s before annual per capita domestic
consumption of wine exceeded 10 liters. Even that represented only one-fifth
of national alcohol consumption; and barely 2% of Australia’s wine produc-
tion was being exported in the 1970s and early 1980s. The country’s index of
revealed comparative advantage (the share of wine in the value of Australia’s
exports of all goods divided by wine’s share of global merchandise exports)
was always below 1 before 1990, but by 2005 it reached 11 (when it was
K. Anderson (*)
Wine Economics Research Centre, University of Adelaide, Adelaide, SA, Australia
Crawford School of Public Policy, Australian National University,
Canberra, ACT, Australia
e-mail: kym.anderson@adelaide.edu.au

https://doi.org/10.1007/978-3-319-98633-3_6
mmorag@uchile.cl
132 K. Anderson
exceeded only by Moldova and Georgia) before falling to less than 4 by 2014.
By then, Australia’s index was also below that of New Zealand, Chile, France,
Portugal, Italy, Spain and South Africa (Anderson 2018).
Over that 150-year period of long-run growth, the industry went through
four boom-slump cycles before beginning its fifth boom in the latter 1980s.
During the next two decades per capita consumption trebled, wine produc-
tion quadrupled, and the share of production exported rose to two-thirds—
by which time Australia accounted for almost one-tenth of global wine
exports. That latest boom peaked just as the global financial crisis hit in 2008,
following which the industry saw profits slump once more for a decade.
Considerable structural adjustments were made over that decade as wineries
positioned themselves to a return to another growth phase.
This chapter seeks to explain why the industrial organization of Australia’s
wine industry has changed over those 17 decades of growth and cycles to what
it is currently. It begins with a brief outline of the industry’s emergence and
how it has evolved through those past cycles around its long-run growth path.
It then provides details of the industry’s current structural organization and
how it developed. The final sections speculate on how that structure may
change in the decades to come and provide a synthesis.
6.2 T
he Australian Industry’s Emergence
and Cyclical Growth
Grapes are perishable, and vines are perennial; planting such a crop involves a
large up-front investment with no yield for the first three years, and full pro-
duction of quality fruit requires at least four more vintages. Furthermore, the
future demand for winegrapes is uncertain. Hence the decision as to whether,
when and how much to expand or contract the area and varieties of grape-
vines is a complex one, depending as it does on expected product prices, costs
and capital appreciation or depreciation. Since producers vary in their expec-
tations, if an expansion or contraction is to occur, it will tend to happen only
gradually as more and more would-be investors become convinced that a
change in profitability will persist long enough to be worth responding to
(Dixit and Pindyck 1994). Meanwhile, in the open Australian economy, the
market price of grapes will move away from its trend level while this slow sup-
ply adjustment is occurring, and then gradually move back to trend as the last
of the adjustment occurs. Should there be excessive exuberance on the part of
investors in response to a period of high grape prices, and if firms have
incomplete information on the extent of new investments by other firms,
mmorag@uchile.cl
The Australian Wine Industry 133
there is a risk of overshooting in aggregate. If that happens, there will then be

a sharper fall in grape prices three to five years later once that excessive plant-
ing transposes into excessive output ready for sale.
Vine-bearing area provides a better indicator of the trend supply of grapes
than the actual quantity of grapes harvested, because the latter is influenced
by seasonal yield fluctuations. Figure 6.1 reveals the five cycles in the expan-
sion of Australian vineyards since the 1840s and also the dominance of the
state of South Australia.
The price for grapes is a function of both supply and demand, the latter
coming from various sources: As fresh table grapes, for drying or for making
wine. Up to the latter 1920s, vine area and wine production expanded in
parallel, but thereafter wine production grew considerably faster than the area
of vines (see upper two lines in Fig. 6.2). The share of grape production used
for winemaking grew from just 10% at the end of the 1930s to more than
90% from the turn of this century (Fig. 6.3). This reflected only partly a faster
growth in demand for wine than for table or drying grapes; it also reflected an
oversupply of grapes which would be wasted if not converted into wine. Since
there was no growth in wine exports from Australia between the 1930s and
1980s (Fig. 6.2), half of that wine was subsequently distilled and a further
180000
Up 104,800 ha (4800/yr, 3-fold rise)
Up 6,300 ha (400/yr, 10-fold rise)
Up 18,400 ha (1300/yr, 4-fold rise)
[or up 8000/yr during 1995-2008]

Up 13,500 ha (1700/yr, 25%
160000
Up 21,600 ha (2200/yr, 2-fold
140000
120000
100000
80000
60000
40000
20000
0
1873
1913
1953
1993
1843
1848
1853
1858
1863
1868
1878
1883
1888
1893
1898
1903
1908
1918
1923
1928
1933
1938
1943
1948
1958
1963
1968
1973
1978
1983
1988
1998
2003
2008
2013
Fig. 6.1 Bearing area of vineyards, Australia (upper line) and South Australia (lower
line), 1843 to 2013 (hectares). (Source: Anderson 2015, Chart 5)
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134 K. Anderson
7
6
5
4
3
2
1
0
1843
1851
1859
1867
1875
1883
1891
1899
1907
1915
1923
1931
1939
1947
1955
1963
1971
1979
1987
1995
2003
2011
Vine area Wine producon Wine exports
Fig. 6.2 Vine area, wine production and wine exports, Australia, 1843 to 2013 (log
scale). (Source: Anderson 2015, Chart 9)
100
80
60
40
20
0
1939
1942
1945
1948
1951
1954
1957
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
Fig. 6.3 Share of grape production used for winemaking, Australia, 1939 to 2013 (%).
(Source: Anderson 2015, Table 8)
one-quarter was fortified (Fig. 6.4). Only since the 1980s has (mostly still)
table wine regained the dominance it had in the nineteenth century.
The latest cycle began with the rise in the local price of exported wine when
the Australian dollar slumped in the mid-1980s. That export price got reflected
in the price of winegrapes, but it took until the mid-1990s before the area of
bearing vineyards began to rise as potential investors adjusted their expecta-
tions—especially following the release of a 30-year strategic plan by the
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100
90
80
70
60
50
40
30
20
10
0
1924
1928
1932
1936
1940
1944
1948
1952
1956
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
2012
Table wine Fortified wine Distillation wine
Fig. 6.4 Shares of table, fortified and distillation wine in total wine output, Australia,
1923 to 2013 (percentage, three-year moving average around year shown). (Source:
Anderson 2015, Chart 31)
200 1000
180 900
160 800
140 700
120 600
100 500
80 400
60 300
40 200
20 100
0 0
Vine area (LH) Winegrape price (RH) Wine export price (RH)
Fig. 6.5 Average price of winegrapes and of exports (RH axis), and vine area (LH axis),
Australia, 1986 to 2017 (A$/tonne, A$/hectoliter, and ‘000 hectares). (Source: Anderson
2015, Chart 17)
industry (AWBC and WFA 2007). That bearing area continued to rise for a
dozen vintages until 2008—even though the average prices of exported wine
and of winegrapes peaked at the turn of the century (Fig. 6.5). Between 2001
and 2011, the export price halved and the winegrape average price fell by
60% in nominal Australian dollars, and they remained at those low levels
through to the 2014 vintage.
mmorag@uchile.cl
136 K. Anderson
A key reason for the slump of the past decade has been a boom in Australia’s
mining sector, thanks to China’s rapid industrialization. That caused the
Australian real exchange rate to double in value between 2001–02 and
2012–13. However, during the subsequent two years it returned halfway back
to its 2001–02 level, which has enabled wine producers to sell much of their
excess wine stocks. As a result, average winegrape prices rose slightly in 2015
and somewhat more in 2016 and 2017 (Fig. 6.5).
Many winegrape growers, unable to recover even their variable costs during
recent years (WFA 2015), decided to replace their vines with more profitable
crops. As a result, by 2015 Australia’s total bearing area of grapes was one-fifth
below the peak in 2008.
6.3 The Structure of Australia’s Wine Industry

Just 2% of wine firms operating in Australia today began commercial life
prior to 1900, only 6% began prior to 1970, and all but one-fifth have been
operating for less than three decades (Table 6.1). The number kept growing
every year until 2013 but fell in 2014 and remained lower the next two years
(Fig. 6.6).
Most of those new wineries are very small though. During 2010–16,
around one-fifth crushed less than 10 tonnes and another one-third or more
crushed between 10 and 50 tonnes (Table 6.2). The proportion below 100
tonnes has fallen only slightly over the past two decades, and the proportion
above 1000 tonnes has been below 5% since 1996—compared with more
than 15% in 1978 (Fig. 6.7).
Table 6.1 Share of Australia’s wine companies, by year of establishment, 2015

Period of establishment Share (%)
Pre-1860 0.9
1860–79 0.6
1880–99 0.7
1900–19 0.2
1920–49 1.1
1950–69 2.5
1970–79 7.6
1980–89 14.0
1990–99 39.8
2000–14 32.5
100.0
Source: Anderson (2015, Table 26)
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3000
2500
2000
1500
1000
500
0
84 986 988 990 992 994 996 998 000 002 004 006 008 010 012 014 016
19 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2
Fig. 6.6 Number of wineries in Australia, 1984 to 2016. (Source: Updated from
Anderson 2015, Table 21)
Table 6.2 Number of Australian wineries by tonnes crushed, 1998 to 2016

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
<10 tonnes 277 390 459 543 548 526
10 to 19 tonnes 324 376 412 449 391 365
<20 tonnes 293 337 418 582
20 to 49 tonnes 211 259 331 414 481 512 527 553 506 472
50 to 99 tonnes 145 180 212 254 303 337 346 316 328 306
100 to 249 tonnes 142 157 189 211 242 257 259 235 229 235
250 to 499 tonnes 50 78 88 106 126 150 158 147 146 144
500 to 999 tonnes 31 40 61 72 74 76 85 85 81 85
1000–2499 tonnes 44 45 54 45 69 61 58 52 61 58
2500–4999 tonnes 19 29 36 40 27 37 38 36 27 29
5000–9999 tonnes 16 20 23 24 28 23 22 16 12 10
10,000+ tonnes 34 41 41 43 41 28 28 31 27 123
Unspecified 13 11 12 7 16 73 85 109 125 141
Total 998 1197 1465 1798 2008 2320 2477 2572 2481 2494
Source: Anderson (2015, Table 21), updated from http://winetitles.com.au/statistics/
In 2000, 80% of wineries had a ‘cellar door’ (meaning they sell direct to
retail customers from the winery itself or a separate retail outlet they own),
and 40% were exporting (though mostly to just four English-language
destinations). By 2016, there were twice as many wineries, but only two-thirds
had a cellar door, and the share exporting had already peaked and then fallen
to 47%. While virtually all make table wines, a declining share is making forti-
fied wines (less than 30% in 2016) and a rising share (42% by 2016) produces
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138 K. Anderson
80
70
60
1978 1996 2016
50
40
30
20
10
0
<100 t 100-999 t 1000-9999 t 10000+ t
Fig. 6.7 Share of Australian wineries by crush, 1978, 1996 and 2016 (%). (Source:
Updated from Anderson 2015, Table 21)
Table 6.3 Various attributes of Australian wineries, 2000, 2010 and 2016
2000 2010 2016
Total no. of producers 1197 2420 2468
Share (%) of producers…
Making table wine 99 99 98
Making fortified wine 33 29 29
Making sparkling wine 28 35 42
Making organic wine na 5 4
Making wine on site 63 52 53
With a website 25 84 90
With a cellar door 78 68 66
Who export wine 41 51 47
Who export to the United Kingdom 28 27 21
Who export to the United States 26 27 18
Who export to Canada 11 24 19
Who export to NZ 14 8 8
Who export to Japan 12 12 13
Who export to Hong Kong 8 19 21
Who export to Singapore 7 25 22
Who export to China 2 23 30
Source: http://winetitles.com.au/statistics/wineries_numbers.asp
sparkling wines; 4% are making organic wines and only half are making wine
on site (down from two-thirds prior to 2000). All but one-tenth now have a
website. Around half export wine, but in 2016 only one in five or six exported
to what had been Australia’s two largest markets, the United Kingdom and the
United States, with a larger proportion exporting to the fast-growing markets
in Asia, especially China (Table 6.3).
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The 1% of Australian wineries that crush more than 10,000 tonnes account
for all but one-seventh of the national crush, with around half crushed by the
three biggest wineries. By contrast, those firms crushing less than 1000 tonnes
account for no more than 4% of the national crush and of the wine produced
in Australia.
This very strong concentration of firms in Australia’s wine production is
not uncommon among New World wine-exporting countries. In 2009
Australia at 62% was second after Chile in the share of domestic sales
accounted for by the country’s four largest wineries. That share had fallen to
41% by 2015 though, as several large firms consciously moved away from
producing large-volume but low-priced/low-profit lines. This compares with
Chile at 91%, Argentina at 60% and the United States at 56% in 2015. By
contrast, in Western Europe the highest national four-firm concentration in
2015 was 20% (Spain), followed by Italy (18%, up from 10% in 2009) and
France (16% in 2009)—see Table 6.4.
Table 6.4 Shares of domestic wine sales volume by largest four wineries, Australia and
other key wine-producing countries, 2009 and 2015(%)
Largest firm Largest four firms
2009 2015 2009 2015
Australia 23 16 62 41
Other New World
New Zealand 24 23 48 53
Canada 21 12 42 34
United States 21 23 56 56
Argentina 29 27 61 60
Chile 33 31 >86 91
South Africa 34 31 37 36
Western Europe
France 11 na 16 na
Italy 6 8 10 18
Portugal 8 3 25 10
Spain 12 11 21 20
Austria 5 6 13 10
Germany 1 1 4 4
C/Eastern Europe
Bulgaria 13 12 40 38
Hungary 8 9 15 19
Romania 11 11 32 38
World 13 na 28 na
Source: Anderson and Nelgen (2013, Table 33), compiled and updated from
Euromonitor International (2016)
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140 K. Anderson
While the biggest wineries in Europe tend to be producer cooperatives, in

Australia (and most other New World countries) the largest ones are either
listed on the stock exchange or are large family firms or private equity groups.
Certainly cooperatives operated in Australia in earlier decades, but they
were either converted to or absorbed by other private companies. The country’s
biggest winery by volume today (Accolade) was purchased in 2003 as BRL
Hardy, which was a merger of the Hardy family business (founded in 1853)
with the former Berri and Renmano cooperatives (founded in 1922 and 1914,
respectively).
Mergers and acquisitions tended to occur during boom periods or as ‘fire
sales’ when the industry had been depressed for some time. A large number of
multinational, multiproduct firms purchased Australian wineries during the
1965–76 boom, for example, but many of them soon divested of those assets
once the boom subsided. The best of their brands have become part of what
are now the country’s three biggest wineries (Anderson 2015, Table 23). Each
of those three firms depends on independent growers for the majority of their
winegrapes in Australia, but they also now make wine in other (especially
New World) countries. As a consequence, they are in a stronger bargaining
position when they negotiate price and other supply conditions with those
independent grapegrowers than was the case during the vineyard expansion
boom in Australia in the 1990s.
The largest Australian wineries in terms of the value of wine sales in 2015
are listed along with various additional criteria in Table 6.5. What is clear
from that table is the relatively low-rank correlations across those criteria.
Some grow a large share of the grapes they crush, others a small share; some
also buy wine from other processors; some have a single processing plant, oth-
ers have several large or smaller plants (in different locations); some sell mostly
in the domestic market, others mostly export; some export low-value wines,
others high-priced ones. Only four of those 18 firms were not already operat-
ing by 1980.
The biggest exporting firms have been able to produce large volumes of
low-end premium wines that use grapes from several regions, so as to ensure
little variation from year to year in wine style and quality. That type of homog-
enous product suited perfectly the customers of large British supermarkets. By
the mid-1980s, those supermarkets, dominated by Sainsbury’s, Marks and
Spencer, Waitrose and Tesco, accounted for more than half of all retail wine
sales in the United Kingdom (Unwin 1991, p. 341).1 Given also Australia’s
1
The introduction of commercial television in the 1980s strengthened the market power of large super-
markets. See the special issue on the history of commercial television in Europe in VIEW Journal of
European Television History and Culture, Volume 6, Issue 11, 2017.
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Table 6.5 Ranking of Australia’s largest wine companies by wine sales value and other
criteria, 2015
Wine Wine Owned Owned Wine Wine Earliest
sales prod’n or leased or leased export export year of
value volume vine area vines (ha) value volume brands
Treasury 1 3 1 9133 1 2 1843
Wine
Pernod 2 4 5 1662 3 4 1828
Ricard
Accolade 3 1 9 1002 4 1 1836
Casella 4 2 2 2891 2 3 1969
Australian 5 5 3 2700 5 5 1938
Vintage
McWilliam’s 6 11 10 980 10 10 1877
De Bortoli 7 7 11 845 8 7 1928
Warburn 8 8 8 1017 14 13 1959
Brown 9 18 13 787 12 18 1889
Brothers
Yalumba 10 13 12 820 7 8 1849
Tahbilk 11 19 21 421 17 15 1860
Angove 12 15 na na 15 12 1889
Kingston 13 6 6 1500 9 na 1979
Estate
Qualia 14 10 14 690 18 17 2009
Wine 15 na 17 508 na na 1930
Insights
Andrew 16 12 16 565 6 6 1995
Peace
Littore 17 14 4 1850 19 14 2008
Zilzie 18 9 15 587 20 19 1999
Source: http://winetitles.com.au/statistics/wineries_numbers.asp
close historical ties with Britain, its firms were able to dominate that market
in the final decade of the twentieth century.
Not all of Australia’s oldest wineries are the largest. Among them are the
dozen so-called First Families of Wine, which between them have 1200 years
of winemaking experience (www.australiasfirstfamiliesofwine.com.au). These
are all family-owned private businesses, some of them several generations old.
They formed an alliance in 2009 to tell the world about the heritage of
Australia’s premium wines, to share the stories behind them, to celebrate the
things they have in common and the differences that make them unique and
occasionally to travel together on sales missions abroad.
In terms of quality of wines produced in Australia, as of 2009 about one-
eighth were non-premium, half were commercial premium (between US$2.50
and $7.50 per liter wholesale pre-tax), a bit over one-quarter were super pre-
mium still wines and one-tenth were sparkling wines. Domestic consumption
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142 K. Anderson
and imports were more biased toward higher quality, while exports were more
biased toward the lower-quality range in 2009 (Anderson and Nelgen 2013,
Section VI). Since then, however, the quality of Australian wines produced,
consumed domestically and exported have all risen somewhat. In the case of
red wines, for example, the share of off-trade domestic sales at less than AUD6
per liter fell from 35% to 25% between 2009 and 2016 while the share above
AUD13.50 per liter rose from 27% to 33% and the share between those two
extremes rose from 38% to 42% (Euromonitor International 2017).
6.4 Features of Grape Growing in Australia

There are more than twice as many independent grapegrowers as winemaker-
grapegrowers in Australia, and their vine area and winegrape crush also are
about twice that of winemaker-grapegrowers. This varies by state though,
with South Australia having a disproportionate share of independent grape-
growers (see bold columns of Table 6.6). Many of those independent growers
would have been members of processing cooperatives (as in Europe) before
those organizations were absorbed by private companies. The average vine-
yard size was 23 hectares nationally in 2012, but that of independent grape-
growers was only two-thirds the size of that of winemaker-grapegrowers (20.5
vs. 30.4 hectares). The latter have lower yields per hectare though, at 8.6
tonnes compared with 12.3 tonnes for independent grapegrowers in 2012,
according to the data reported in Table 6.6. It is not clear whether the average
size of vineyards and their average yields will rise or fall over the coming years,
given the wide dispersion in vineyard area around the average size.
Australia’s regions can be classified as hot, warm and cool. Hot regions in
2008 accounted for 61% of the volume of winegrapes produced but just 44%
of their value, while cool regions accounted for 9% of the volume and 16% of
the value. Yields are particularly high in the hot regions because of irrigation,
averaging 17.5 tonnes/ha in 2012 while cool regions averaged 5.6 tonnes and
warm regions only a little higher at 6.2 tonnes. Winegrape prices are more
than commensurately lower in the hot regions, however, at three-fifths of the
national average compared with 70% above that average in warm regions and
110% above in cool regions (Anderson 2015, Tables 55, 57, 61, 72 and 73).
During 2012 to 2015, more than 85% of the growers in hot regions suffered
financial losses, whereas in Australia’s other regions less than half the produc-
ers suffered losses in those painful years when grape prices were at their lowest
(WFA 2015).
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Table 6.6 Number, vine-bearing area and crush of Australian independent and winemaker grape-growing establishments, by vineyard size
range (ha) and state, 2012
Number Independent grapegrowers Sub-total Winemaker-grapegrowers Sub- Total
total
<10 10–25 25–50 50–100 >100 <10 10–25 25–50 50–100 >100
South 1158 585 261 117 55 2176 161 145 95 50 58 509 2685
Australia
New South 430 244 124 65 53 916 204 66 21 16 29 335 1252
Wales
Victoria 568 190 63 39 25 885 348 89 50 29 17 532 1417
Western 214 70 21 11 6 323 168 79 16 18 17 298 620
Australia
Tasmania 51 2 2 56 61 10 1 3 3 79 134
Australia 2458 1096 472 232 140 4398 994 394 187 116 125 1815 6213
totala
Area (ha) Independent grapegrowers Sub-total Winemaker-grapegrowers Sub- Total
total
<10 10–25 25–50 50–100 >100 <10 10–25 25–50 50–100 >100
South 5844 9018 9033 8192 11,596 43,683 761 2437 3395 3453 16,242 26,287 69,970
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Australia
New South 1853 3870 4423 4315 13,194 27,654 872 977 671 1075 7114 10,709 38,363
Wales
Victoria 2333 2876 2167 2565 4272 14,213 1465 1347 1688 2124 3876 10,500 24,713
Western 799 1069 733 760 860 4222 766 1281 494 1206 2349 6095 10,316
Australia
Tasmania 105 28 71 205 213 125 41 204 442 1024 1229
Australia 11,045 16,934 16,427 15,833 29,921 90,160 4254 6229 6399 8144 30,196 55,222 145,382
totala
(continued)
Crush Independent grapegrowers Sub-total Winemaker-grapegrowers Sub- Total

(tonnes) total
<10 10–25 25–50 50–100 >100 <10 10–25 25–50 50–100 >100
South 67,291 119,257 121,043 83,905 150,648 542,143 3525 14,816 20,897 22,529 165,008 226,776 768,918
Australia
New South 15,801 42,393 57,528 54,819 177,313 347,854 2312 3356 2279 8156 96,844 112,948 460,802
Wales
Victoria 26,215 38,323 32,406 35,426 55,704 188,074 5681 7861 11,218 17,344 47,576 89,680 277,754
Western 3557 6781 6138 4601 5450 26,528 3490 7419 3409 9184 17,992 41,493 68,021
Australia
Tasmania 455 147 155 757 971 638 136 1503 1375 4622 5379
Australia 113,534 206,947 217,269 178,752 389,115 1,105,618 16,311 34,240 38,172 58,717 328,992 476,431 1,582,049
totala
Source: WGGA (2013)
a
Total includes Queensland, the Australian Capital Territory and the Northern Territory, where winegrape growing is very minor
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Since the demise of cooperatives, growers have sought contracts with win-
eries. These have varied from a handshake to a written legal document.
Typically they specify an area of vines by variety and certain quality criteria or
proxies such as a maximum number of tonnes per hectare. In the 1990s as the
industry was expanding and wineries were keen to secure grape supplies, con-
tracts as long as ten years were not uncommon. But as the oversupply situa-
tion emerged in the new century, those contracts were often renewed with
much shorter time frames. In some cases they were not renewed at all, leaving
the grower to either sell on the spot market or get the grapes produced into
wine for later resale in the wholesale bulk market or for retail sale under their
own new label.
Despite the rapid expansion of Australia’s wine industry over the two
decades to 2008, vineyards still account for less than 1% of the country’s area
under crops, and even less than was the case in the first globalization wave in
the latter half of the nineteenth century. In 2015 its share was 0.55%, which
is not much above the global average of 0.45% of total crop area—and barely
one-tenth the fraction in the key wine-producing countries of Western
Europe.
Winegrapes in Australia are grown in more than 60 legally defined regions
or geographical indications, covering a spectrum from cool (similar to
Burgundy) to hot (similar to some Mediterranean regions). A little over two-
fifths of the bearing area is located in hot regions, a similar proportion is in
warm regions and the remaining one-eighth is in cool regions. Almost half the
vineyards are in the state of South Australia, which has all three types of cli-
mate zones. The vineyards on the island of Tasmania, by contrast, are virtually
all classified as cool climate. Irrigation is essential in the hot regions, so their
vineyards are mostly located along the sides of major rivers. In cool regions,
by contrast, irrigation is rarely used once young vines are established.
In sharp contrast to the European Union, there are relatively few regula-
tions controlling the winegrape production process in Australia. In particular,
blending of wines from any combination of grape varieties is allowed, as is
blending from any number of regions. There is therefore no distinction in
Australia of the sort made in Europe between appellation and generic wines.
Australian producers have made a point of marketing their wines with varietal
labeling and have only recently begun to also emphasize regional (and even
single vineyard) origins of the grapes. Meanwhile, France is beginning to add
varietal names to the labels of some of its wines. Hence the Old World and
New World are converging toward both using both attributes in their
marketing.
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146
K. Anderson
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Fig. 6.8 Shares of varieties in Australia’s winegrape-bearing area, 1956 to 2012 (%, three-year averages). (Source: Anderson 2015)
Australia has changed its winegrape varietal mix enormously during the
past six decades. Figure 6.8 reveals the expanded share of bearing area of reds
through the 1960s and 1970s before whites emerged with a new preference
for Chardonnay, and then reds re-emerged with the expansion of both
Cabernet Sauvignon and Syrah (Shiraz) plus Merlot. Accompanying the
growth of these varieties was the demise in popularity of grape varieties such
as Garnacha Tinta (Grenache), Muscat of Alexandria, Doradillo, Sultana,
Palomino and Pedro Ximenes. Those declining varieties had been the main-
stay of fortified wines and/or served well as multipurpose grapes able to be
directed to drying when that was more profitable than their use in winemak-
ing (Fig. 6.8).
These trends in winegrape-bearing areas mean there have also been great
changes in the country of origin shares of the nation’s winegrape varieties, as
defined by Robinson et al. (2012). Australia’s mix has become more ‘interna-
tional’ or, more accurately, more French than most countries. In the 1950s,
20% of the national vineyard was planted to French varieties while 40% was
planted to Spanish varieties and another 10% to Greek varieties. Only small
shares were from Italy and Germany, and the shares from other countries were
tiny. By contrast, by the early 2000s all but 10% of the bearing area was
planted to French varieties, and Spanish and German varieties filled half of
the remainder. In this second decade of the present century, there has been
new interest in planting varieties from warm parts of southern Europe (espe-
cially Italy) in anticipation of further global warming, but they still comprise
only a small fraction of the national area (Anderson 2016, Table 2).
The main reason for Australia’s varietal mix becoming more French has to
do with Shiraz, or Syrah as it is called in most parts of the world. The popular-
ity which Australia brought to Syrah in the 1990s has led to many other
countries expanding their plantings of this variety. In 1990 there were barely
35,000 bearing hectares globally, making it 35th in the area ranking of all
winegrape varieties in the world. But by 2000 there were 102,000 hectares,
and by 2010 that had risen to 186,000, bringing Syrah to the 6th position on
that global ladder and less than one-third below the global areas of the two
now-most-widespread varieties, namely, Cabernet Sauvignon and Merlot
(Anderson 2013).
Over the decade to 2010, the Syrah area globally grew more than either
Cabernet or Merlot—in fact only Tempranillo expanded faster. Certainly
Australia contributed to that expanding area of Syrah, but expansion was even
greater in France and Spain. There were also large plantings in other key New
World wine countries, and in Italy and Portugal. As a result, Australia is no
longer as globally dominant in this variety: Its share of the global Syrah area
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148 K. Anderson
dropped from 29% in 2000 to 23% in 2010—even though Syrah increased

its share of Australia’s own vineyards over that decade, from 22% to 28%.
Varietal differences also are more muted between regions within Australia
than is the case within other countries—notwithstanding the very large differ-
ences in growing conditions between cool, warm and hot regions across
Australia. In 2010, of the three most similar regions in the world to each of
Australia’s 94 regions and sub-regions, less than 7% were non-Australian
regions. In New Zealand, by contrast, more than two-thirds of the three most
similar regions to each of its ten regions were in other countries (Anderson
2016).
6.5 T
he Changing Structure of Australian Wine
Distribution and Retailing
During Australia’s first export boom in the three decades to World War I (see
Fig. 6.9), virtually all its wine was shipped bulk, in hogsheads (large wooden
barrels). Exports were generally of extremely low quality prior to that (mostly
dry red, shipped only weeks after the grapes had been crushed), with little
invested in marketing and distribution arrangements in the (almost sole) des-
tination country of Britain. While strong prejudices against New World wine
remained throughout that first globalization wave, a firm reputation for
100
90
80
70
Exports as % of producon
60
Imports as % of consumpon
50
40
30
20
10
0
1843
1850
1857
1864
1871
1878
1885
1892
1899
1906
1913
1920
1927
1934
1941
1948
1955
1962
1969
1976
1983
1990
1997
2004
2011
Fig. 6.9 Exports as percentage of wine production and imports as percentage of

apparent wine consumption, Australia, 1843 to 2017 (percentage, three-year moving
average around year shown). (Source: Updated from Anderson 2015, Chart 8)
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Australian dry wines began to be established in Europe by 1914 in the generic

sense at least, even though varietal, regional and winery brand labeling was
still absent (and would be until the 1950s).
In the first half of the most recent three-decade export boom, by contrast,
most wine was exported in labeled 750 ml bottles revealing regional details
along with the winery brand. In addition, as mentioned above, Australian
producers chose to differentiate themselves from those in Europe by clarifying
on their labels the winegrape variety or varieties (or cultivars) used to produce
each wine.
Since 2000, however, the share of Australian wine exported in bulk has
risen rapidly, from less than 15% to 57% by 2014 (in volume terms and to
22% in value terms), although it fell slightly to 53% by 2017. That bulk wine
is typically transported in 24,000-liter bladders that fit exactly into 20-foot
containers for shipping to the northern hemisphere. Only some of it is low-
quality surplus wine destined for blending into non-premium wine at its des-
tination; an increasing share of it is bottled and labeled on arrival by or for the
winery that produced it or for a retailer seeking to label it under its own
brand. That is especially so of exports to the United Kingdom, all but one-
fifth of which is shipped bulk.
The destination of Australia’s exports has changed dramatically in the past
two decades. The United Kingdom and New Zealand were initially the main
destinations, and then gradually the United States and Canada became more
important. But in the most recent decade, East Asia has also become very
significant such that by 2017 it had a far larger share (46%) than either Europe
60
50
40
30
20
10
0
1990-95 1996-01 2002-06 2007-12 2013-16 2017
Europe N. America Asia Other
Fig. 6.10 Shares of the value of Australia’s exports to various regions, 1990 to 2017
(The 2016 data are for the 12 months to September 30). (Source: Updated from
Anderson and Nelgen 2013, Table 144) (%)
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150 K. Anderson
or North America, both at 25% (Fig. 6.10). The average price of Australia’s

exports to Asia are about twice as high as exports to the rest of the world, and
most sales are now in bottles. This plus proximity ensures the region’s impor-
tance to Australia relative to other wine-exporting countries will grow as
Australia continues to raise the average quality of its wine exports and as the
three bilateral trade agreements recently signed by Australia with China, Japan
and Korea are implemented—and the United Kingdom’s withdrawal from
the EU is likely to contribute to that trend (Anderson and Wittwer 2015,
2018).
In the Australian domestic market (where 35–40% of production is sold),
supermarket dominance has been on the rise. Today just two supermarket
chains (Coles and Woolworths) account for the majority of domestic wine
sales, with Aldi supermarkets a distant third but rapidly expanding. Each of
them is developing their own ‘home’ brands, with perhaps more than one-
fifth of their wine sales now under their own labels. Since consumers find it
very difficult to distinguish those brands from traditional winery brands, they
are in direct competition with the latter on the same supermarket shelves.
It is this dominance of supermarkets at home, as well as abroad, that has
encouraged takeovers and increasing concentration among wineries and their
corporatization. The aim of those developments has been partly to raise the
enormous amounts of capital required for expansion: The capital intensity of
winegrape growing is about 50% above that of other agriculture, and that of
winemaking is more than one-fifth higher than that of other manufacturing
in Australia. Larger size and greater diversity of offerings also improve the
negotiating position of wineries vis-à-vis supermarket retailers and the finan-
cial muscle to market abroad.
The latter is more important for wineries in the antipodes than in the
northern hemisphere, because of the long distance and travel costs associated
with developing and maintaining those export markets. True, relative distance
is becoming less of a handicap for Australia as markets in Asia grow.
Nonetheless, breaking into and servicing those emerging markets is very time-
consuming, so economies of size of export-focused wineries will continue to
play a role there as well.
Online sales are becoming more important in Australia as elsewhere. In
Australia in 2016 they accounted for 10% of the volume of off-trade wine
sales (and 4.4% of the value of all alcohol sales in 2014, up from 0.9% in
2009). However, the supermarket chains are at least as actively engaged in
online sales as other retailers, and this channel may even be adding to their
overall market dominance. Indeed one of the two large Australian supermar-
kets is exploring the option of establishing a physical and online presence in
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China, which will mean Australia’s exporters to that expanding market will
not have escaped that retailer’s influence.
One indication of that increasing dominance is the declining share of the
five top wineries’ brands in the volume of Australia’s domestic sales. In 2008
those five brands accounted for 65% of the still wine market in Australia, but
by 2016 their share was just 48% (Euromonitor International 2017).
6.6 What of the Future?

Recovery from the Australian wine industry’s recent difficulties won’t be easy,
as major adjustments are required by many participants. To the extent there is
a willingness to continue to invest for the long term (rather than just focusing
on quarterly returns to shareholders), and if the earlier spirit of collaboration
and unity within the industry can be reinvigorated, a return to at least normal
levels of profitability should be possible before long. Growth in domestic sales
will be sluggish because of slowing income and population growth and a
strengthening anti-alcohol lobbying; but with the ending of the mining
investment boom, the Australian dollar depreciated by more than one-quarter
during 2013–17 which has boosted Australia’s competitiveness in export mar-
kets and lessened the competition from imports in the domestic wine
market.
As well, adjustments are under way in generic export marketing. The earlier
emphasis on ‘Brand Australia’, of providing ‘sunshine in a bottle’, has switched
to a marketing strategy that places far more emphasis on higher-quality wines
and exploits the scope to differentiate through building regional, varietal and
style reputations. This new emphasis is certainly needed, given the increasing
competition from lower-wage Southern Hemisphere countries in the com-
mercial premium category. Chile may have already surpassed Australia in
offering the world the best value wine in that category, hence the switch in
emphasis to making the point that Australia also offers excellent value for
money with its finer wines.
Getting that message across in not only Australia’s traditional markets but
also in Asia will require a larger generic marketing budget than the industry
has had in the past, which was trivial relative to the value of national produc-
tion and the extent of expenditure by European competitors. In 2011–12, for
example, Australia’s expenditure on generic promotion was barely 0.7 cents
per liter of wine produced. That same year, Bordeaux alone spent 3.3 cents per
liter. The European Union supplements regional and national promotion
expenditures of its member states, and during 2009–13 it provided 522 mil-
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152 K. Anderson
lion Euros for wine promotion, the equivalent to 0.6 Australian cents per liter
of EU wine produced. Moreover, that EU promotion expenditure is to be
raised to 1156 million Euros for the period 2014–18 (European Court of
Auditors 2014). That is around 1.3 cents per liter, or double the rate recently
spent in Australia—and that is just the supplement from Brussels, which adds
to what will be spent by national governments and EU wine regions
themselves.
Fortunately for the Australian industry, the national government announced
in 2016 that it would provide a one-off grant of AUD50 million over the four
years to 2020 to boost the industry’s competitiveness and thereby reboot prof-
itability. More specifically, this Export and Regional Wine Support Package is
to focus on wine promotion internationally and domestically and is designed
to help regional wine producers, wine-related tourism and export-focused
businesses.
As for grape and wine research, less than 1% of the value of grape and wine
production has been invested in R&D in the past, despite the returns from
such investments being very high. Returns in the next two decades are likely
to be even higher, bearing in mind rapid marketplace changes (the need to
produce better quality rather than quantity of grapes and wine) and long-
term uncertainties such as climate change and global economic growth.
Wine consumer tax policy reform could contribute to the transition to
higher-quality wine production. If Australia were to switch from its current
29% ad valorem wholesale tax to a volumetric tax on domestic sales, that
would encourage the transition to finer wines while weakening the case by
anti-alcohol lobbies and the beer and spirits producers for a higher rate of tax
on wine. Such a switch would make it easier for small fine-wine producers to
sell all their production on the domestic market, thereby avoiding the high
fixed costs of breaking into new export markets.
6.7 Synthesis of Structural Features

This chapter makes it clear that Australia’s wine industry structure is very dif-
ferent from that of traditional wine-producing countries of Europe.
Specifically, in Australia:
• Winegrape production faces relatively few regulations and so growers are

free to choose their variety of grapes, yields, how much to irrigate and so
on.
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• Wineries too face relatively few regulations and so can blend wines from
various regions, blend whatever varieties they wish and label their bottles
with as much varietal, regional and vineyard information as they wish.
• Since the industry’s take-off in the 1990s, the focus has been on export
markets, since the domestic market has been growing very little in volume
terms at least.
• The importance of Asia, and especially China, to Australian wine exporters
is already very strong and will become even more so in the next few years
as Australia’s new bilateral trade agreements with Northeast Asian countries
are implemented.
• The average quality of wine will keep rising as the share of production in
the warmest regions, where quality is lowest, shrinks in response to global
warming and rising prices of irrigation water.
References
Anderson, K. 2016. Evolving varietal and quality distinctiveness of Australia’s wine
regions. Journal of Wine Research 27 (3): 173–192, September.
———. 2017. Australia’s wine industry competitiveness: Why so slow to emerge? Wine
economics research centre working paper 0317, University of Adelaide, November.
Anderson, K. (with the assistance of N.R. Aryal). 2013. Which winegrape varieties are
grown where? A global empirical picture. Adelaide: University of Adelaide Press.
www.adelaide.edu.au/press/titles/winegrapes.
———. 2015. Growth and cycles in Australia’s wine industry: A statistical compendium,
1843 to 2013. Adelaide: University of Adelaide Press. www.adelaide.edu.au/press/
titles/austwine.
Anderson, K., and S. Nelgen. 2013. Global wine markets, 1961 to 2009: A statistical
compendium. Adelaide: University of Adelaide Press. www.adelaide.edu.au/press/
titles/global-wine.
Anderson, K., and G. Wittwer. 2015. Asia’s evolving role in global wine markets.
China Economic Review 35: 1–14, September.
———. 2018. Cumulative effects of Brexit and other UK and EU27 bilateral FTAs on
the world’s wine markets. Wine Economics Research Centre Working Paper 0118,
University of Adelaide, January.
AWBC and WFA. 2007. Wine Australia: Directions to 2025. Adelaide: Australian
Wine and Brandy Corporation and Winemakers Federation of Australia. www.
wineaustralia.com/Australia/Default.aspx?tabid=3529.
Dixit, A., and R.S. Pindyck. 1994. Investment under uncertainty. Princeton: Princeton
University Press.
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154 K. Anderson
Euromonitor International. 2017. Passport: Wine in Australia. London: Euromonitor

International, June.
European Court of Auditors. 2014. Is the EU investment and promotion support to the
wine sector well managed and are its results on the competitiveness of EU wines dem-
onstrated?, Special report no. 9, Luxembourg: Publications Office of the European
Union.
Robinson, J., J. Harding, and J.F. Vouillamoz. 2012. Wine grapes: A complete guide to
1,368 Vine varieties, including their origins and flavours. London: Allen Lane.
Unwin, T. 1991. Wine and the vine: An historical geography of viticulture and the wine
trade. London/New York: Routledge.
WFA. 2015. 2015 production profitability analysis. Adelaide: Winemakers Federation
of Australia, December.
WGGA. 2013. National winegrape grower booklet. Adelaide: Wine Grape Growers’
Association, November.
mmorag@uchile.cl
7
The Argentinean Wine Industry
Javier Merino
7.1 Introduction
In the last three decades, the Argentinean wine industry has experienced a
dramatic change in its value-added chain. In the 1990s it opened its economy,
and very important foregoing investors came to the wine sector. At the begin-
ning the most important change took place in the vineyards. A special situa-
tion in the exchange rate then allowed the wineries to go to export markets
and introduce the wine successfully in the most sophisticated markets. At the
same time, some wineries introduced Malbec, which was welcomed by con-
sumers. This caused a drastic change in the Argentinean wine sector that
became a competitive player in the wine market worldwide. The recent years
have been very difficult for the Argentinean economy, and many wineries
have had to adapt the business to new conditions, especially in the domestic
market. Nowadays the Argentinean wine sector structure is very different, and
the wineries and producers have the challenge to grow in a very competitive
market with opportunities and very strong threats.
J. Merino (*)
Cuyo National University, Mendoza, Argentina
University of Mendoza, Mendoza, Argentina
e-mail: jmerino@areadelvino.com

https://doi.org/10.1007/978-3-319-98633-3_7
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156 J. Merino
7.2 S
tructural Features of the Vinegrowing
Sector
7.2.1 Evolution of Vineyard-Planted Areas
Argentinean viticulture has experienced a major transformation process over

the last two decades, showing a substantial increase in wine quality and estab-
lishing a firm foothold in the international markets. This transformation
began in the vineyard, back in the 1980s, when a maximum of 315,000 ha
(777,000 acres) were planted (Fig. 7.1), a large portion of which were low-
quality grapevines that had been planted almost exclusively for the domestic
market. With little to no international placement, the consumption of low-
quality grapes soon began to decline.
The first half of the 1980s was witness to a vine-uprooting process, the
aftermath of successive crises, production surpluses, and low prices subsidized
by the national government. When combined with a variety of political inter-
ventions, from strict regulation policies to grape purchases by the State, none
of these events contributed to a profitable activity. Soon after the uprooting of
almost 100,000 ha of vineyard-planted areas (250,000 acres), in the year
2000, only 188,000 ha (465,000 acres) remained, despite an ongoing process
of planting newer and higher-quality vineyards in order to improve wine
quality for export purposes.
314.655
202.146 208.708 206.488 208.708 207.253 206.410 203.511

188.398
1980 1990 2000 2012 2013 2014 2015 2016 2017
Fig. 7.1 Evolution of cultivated surface area of grapes for winemaking in Argentina
(ha). (Source: INV)
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The Argentinean Wine Industry 157
From 1990 to the present day, the cultivated surface area of high-quality
varieties has increased by almost 4600 ha (11,300 acres). However, when ana-
lyzing the nine most purchased varieties for export (Malbec being the leader),
their growth in particular has increased to more than 77,000 ha (190,000
acres), while other varieties have fallen by more than 72,000 ha (178,000
acres).
7.2.2 Regional Distribution
Traditionally located on the west of Argentina, wine-producing regions are

strewn along the foot of the Andes mountain range, a feature that has trans-
lated into a unique and special prestige associated with the grapes and wines
coming from the said regions. Although wine grapes are grown in 17 out of
24 provinces in Argentina, Mendoza ranks first in terms of wine production,
representing more than 71% of the country’s total vineyard-planted surface
area and stretching over four oases from north to south. Argentina is one of
the countries with the highest latitude dispersion of vineyards. Mendoza is
followed by San Juan and La Rioja provinces in terms of wine production. In
the last few years, new provinces added to the list, notably Neuquén in the
Argentine Patagonia.
7.2.3 Growth of Wine Provinces
Argentina’s switch in grape varieties went hand in hand with the adoption of
new technologies in the irrigation systems, which additionally expanded the
planted surface area-inadequate vinegrowing regions where traditional irriga-
tion methods were otherwise not possible. This spurred Argentine viticulture
to extend to high-altitude areas and regions where the combination of ther-
mal amplitude and soils offered the possibility of growing higher-quality
grape varieties, very much demanded by international markets.
Between 2001 and 2013, the provinces of Mendoza, Neuquén, and Salta
revealed the largest area expansion. In the first one, Mendoza, new regions
began being cultivated. Neuquén, the newest of the Argentine winemaking
regions, expanded due to private investments, financial support from the local
government, and optimal agricultural conditions given its latitude, sun expo-
sure, and the presence of wind year-round. In Salta, the vinegrowing region
with the highest altitude in the country, the surface area expanded in an
attempt to increase thermal amplitude for the production of red varieties.
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158 J. Merino
Observing the change in planted surface area and the variations of more
than 5000 ha (12,500 acres) alone hides the fact that 11 regions still managed
to increase their planted surface area by 26,000 ha (64,000 acres) between
2001 and 2013. Luján de Cuyo, Argentina’s most traditional winegrowing
region, with the largest Malbec-planted surface area, led this change by
expanding to the south and west. This area is home to some of the oldest
wineries in the country, along with those founded in Maipú.
7.2.4 The Switch in Varieties
The most cultivated variety today is Malbec (Table 7.1), due to international

and national demands. While the total cultivated surface area has been increas-
ing 0.02% annually over the last 25 years, red varieties have expanded 3.7%
per year. Beyond Malbec, varieties such as Cabernet Sauvignon and Syrah,
among red grapes, and Chardonnay and Sauvignon Blanc, among white vari-
eties, have increased their cultivated surface area. Malbec proved to be the
main catalyst behind this process. Back in 2017, Malbec boasted Argentina’s
largest cultivated surface area, even after having suffered from the drastic, low-
price-driven vine-uprooting process that took place in the 1980s.
Eleven varieties were responsible for boosting this expansion. Almost all of
them were red, but Chardonnay and Sauvignon Blanc played a major role as
well. Closely behind Malbec, the next largest expansion was evidenced by
Cabernet Sauvignon, which grew more than 12,650 ha (31,000 acres). Before
the acceptance of Malbec, primarily in international markets, the most appeal-
ing vine to investors was actually Cabernet Sauvignon, mainly because it had
been leading worldwide preferences since the beginning of varietal wine phe-
nomenon in the United States. In fact, from 1990 to 2000, during the first
phase of Argentinean viticulture modernization, the cultivated surface area of
Cabernet Sauvignon grew almost 10,000 ha (25,000 acres), that is, two thirds
of total growth, while Malbec only grew 6000 ha (15,000 acres).
Syrah ranks third when it comes to investments. With respect to this vari-
ety, investors, especially in the 1990s, focused on two signs. The first one was
the considerable growth that, for some time, positioned this variety in the
sphere of foreign markets, following the success of Australian exports. The
second was the possibility of taking advantage of a number of tax breaks,
especially in San Juan, where this variety had proven to adapt very well.
Bonarda has shown a very interesting growth period on the grounds of two
notable characteristics: its easy adaptability to blend, especially with Malbec,
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Table 7.1 Surface area of wine varieties (ha)

1990 2000 2010 Variation CAGR
(1) (1) (1) 2017 1990/2017 1990/2017
Red
Malbec 10,457 16,347 28,481 41,301 30,844 5.2%
Bonarda 12,186 14,989 18,748 18,708 6522 1.6%
Cabernet 2347 12,199 17,672 14,997 12,650 7.1%
Sauvignon
Syrah 687 7915 13,086 12,470 11,783 11.3%
Tempranillo 5659 4335 6563 6015 356 0.2%
Merlot 1160 5513 6937 5510 4350 5.9%
Sangiovese 3015 2491 2230 1713 −1302 −2.1%
Pinot Noir 232 1047 1675 2045 1813 8.4%
Tannat 42 136 578 835 793 11.7%
Cabernet Franc 76 207 578 1043 967 10.2%
Barbera 958 1061 732 426 −532 −3.0%
Other red 5562 3808 5497 8496 2934 1.6%
varieties
Red surface area 42,381 70,048 102,777 113,559 71,178 3.7%
White
Pedro Giménez 20,647 15,101 13,378 10,713 −9934 −2.4%
Torrontés Riojano 8625 8181 8480 8171 −454 −0.2%
Chardonnay 908 4625 6584 6207 5299 7.4%
Muscat of 10,184 5539 4034 2637 −7547 −4.9%
Alexandria
Chenin Blanc 4031 3591 2851 2045 −1986 −2.5%
Sauvignon Blanc 278 827 2297 2061 1783 7.7%
Torrontés 4914 3166 2527 1820 −3094 −3.6%
Sanjuanino
Ugni Blanc 2229 2846 2425 1495 −734 −1.5%
Semillón 1255 1028 956 728 −527 −2.0%
Other white 7326 4530 4225 3551 −3775 −2.6%
varieties
White surface 60,398 49,432 42,906 39,428 −20,970 −1.6%
area
Pink-skinned
Cereza 43,100 31,666 29,934 27,971 −15,129 −1.6%
Criolla Grande 36,837 24,641 20,749 14,842 −21,995 −3.3%
Muscat Rose 15,503 10,656 8691 6185 −9318 −3.3%
Other pink- 3927 1956 1908 1526 −2401 −3.4%
skinned varieties
Pink-skinned 99,367 68,918 55,101 50,524 −48,843 −2.5%
grape surface
area
Total surface 202,146 188,398 200,784 203,511 1365 0.0%
Source: INV
mmorag@uchile.cl
160 J. Merino
and its high yields in certain regions. For a long time now, many wineries have
been trying to position this grape internationally as the second most impor-
tant variety from a.
Chardonnay, on its part, fifth in the expansion of cultivated surface area,
shares a similar story as that of Cabernet Sauvignon. Implanted because of its
international popularity, Chardonnay can be used in producing sparkling
wines, which experienced an impressive growth in Argentina, following the
worldwide trends set by younger generations (Fig. 7.2).
In Argentina, Merlot suffered the same fate as that on the world stage. A
once prestigious variety suffering depreciation from consumers, its extension
in our country went from about 1000 ha (2500 acres) in 1990 to more than
7400 ha (18,200 acres) in 2006, to ultimately decline in 2017 to less than
5500 ha (13,500 acres).
Fascinating stories concern the rest of the varieties that expanded in the last
quarter of this century, since all of them constitute modern phenomena. In
Criolla Grande -21,995

Cereza -15,129
Pedro Giménez -9,934
Moscatel Rosado -9,318
Moscatel de Alejandría -7,547
Torrontés Sanjuanino -3,094
- 72,552 ha
Chenin Blanc -1,986
Sangiovese -1,302
Ugni Blanc -734
Barbera -532
Semillón -527
Torrontés Riojano -454
Tempranillo 356
Tannat 793
Cabernet Franc 967
Sauvignon Blanc 1,783
Pinot Noir 1,813
Merlot 4,350
Chardonnay + 77,160 ha 5,299
Bonarda 6,522
Syrah 11,783
Cabernet Sauvignon 12,650
Malbec 30,844
Fig. 7.2 Variation surface area (1990/2017). (Source: INV)
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the case of Sauvignon Blanc, its expansion reflected the formidable acceptance
it was getting from New Zealand, which led it to expand to new regions, such
as Chile. Consequently, given its international popularity, many Argentinean
wineries began growing this variety, contributing to expand its cultivated sur-
face area during the first decade of this century.
Pinot Noir, on its part, has been growing uninterruptedly since 1990 for a
variety of reasons, including the demand for sparkling wines in medium-to-
high price ranges as well as its exceptional adaptation to regions in Valle de
Uco and Patagonia. Additionally, the growing international demand for still
red wines from Burgundy, France, resulted in the creation of new wine styles
from the regions of Sonoma and Oregon in the United States and, more
recently, New Zealand.
The decreasing cultivated surface area experienced by some varieties has
been attributable to the inability to adapt to a number of consumers’ demands,
such as price and quality.
7.2.5 The Expansion Cycle of the Main Varieties
As mentioned before, several vineyard investment stages took place that

matched the different market incentives and the existing surface area each
variety covered when modernization began. Essentially, the said expansion
process was the natural corollary to the newly acquired maturity and knowl-
edge regarding the viticulture industry. Three periods can be identified at this
stage:
1. An introduction period (1990–2000): this is the time when Argentina

held an open economy policy and sought to attract investors to the activ-
ity. Export expertise was not abundant, and world market trends remained
yet unclear as to how to define viticulture in the country. Incentives were
in place to motivate the planting of new varieties, such as reduced prices of
land and the availability of irrigation technology.
Throughout this first period, varieties may be defined as those “interna-
tionally in demand” that did not cover a large implanted area—except for
Malbec, Bonarda, and Tempranillo, whose expansion rates ranged between
10% and 25% annually. The Malbec phenomenon had yet to start,
although this variety already covered more than 10,000 ha (25,000 acres)
at a time when other varieties, such as Cabernet Sauvignon, barely extended
to 2000 ha (5000 acres), and the rest remained well below these figures.
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162 J. Merino
2. The expansion period (2000–2010): worldwide sales of Argentine wine

spiked on currency exchange conditions that proved favorable to foreign
markets. This triggered a powerful process that entailed a change in wine
consumption trends, switching from formerly demanded lower lines all
the way to the higher price ranges. This period was also characterized by
the primary role assigned to consumers’ preferences, which were becoming
increasingly knowledgeable about wine as well as more selective and
focused.
This period additionally evidenced a change in the behavior with respect
to the rest of the varieties. Firstly, their surface area expansion substantially
reduced, as if anticipating to a maturation period. A few varieties remained
the exception, notably Sauvignon Blanc, perhaps influenced by its success
in New Zealand; Tannat, very much adapted to some regions alone; or
Cabernet Franc, whose behavior resembled Tempranillo’s when its culti-
vated surface area dramatically reduced in some places but experienced
increase in others. All the while, Malbec continued to expand to a consid-
erable total area of 16,000 ha (39,500 acres).
3. Maturation period (2010–present): the world market signs and Argentina’s
economic scenario played a decisive role in investment decisions, as com-
panies had gained considerable commercial experience by now. The only
variety to outgrow the others during this period was Malbec, reaching
almost 41,000 ha (101,000 acres) in 2017 despite its uprooting process
back in the 1980s. Furthermore, the expansion occurred despite Argentina’s
ongoing macroeconomic context as from 2010, when inflation edged up
and a process of domestic currency depreciation ensued that immediately
had an impact on exports, the main driver for growth. Because of low mar-
ket demand, the surface area of some varieties reduced, such as Cabernet
Sauvignon, Merlot, Sauvignon Blanc, and, to a lesser extent, Chardonnay.
In a number of cases, these hectares have been replaced with Malbec vines.
The phenomenon in Argentina is not an isolated event, and this is why it
followed the tendency established between 2000 and 2010.
Cabernet Franc and Tempranillo constitute, perhaps, the two excep-
tions to the rule. The former, covering a relatively small implanted surface
area, was a variety widely used at the beginning in plenty of French-style
blends, until some wineries decided to produce it as a single varietal, some-
thing that had quite a favorable reception. Tempranillo, on the other hand,
was gaining worldwide recognition because of its success in Spain, but it
remained almost unknown in the New World. This, however, did not hold
true for Argentina, where Tempranillo already covered a large cultivated
surface area when compared to other red varieties.
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The rest of the varieties showed a similar evolution, supported by the

“globalization” of viticulture and the rapid adoption of innovations. A
comment should be made by now regarding Malbec: although a roaring
success in the United States in the few last years, Malbec has not been used
to leverage the other varieties previously examined. Consequently, Malbec
could be used to showcase other red and even white varieties in the future.
7.2.6 Size of Properties and Changes in Technology
The switch of planted varieties was further accompanied by changes in the

production systems. One of the most striking phenomena behind the trans-
formational process of Argentinean viticulture from 1990 to the present
days has been the arrival of investment in the sector, largely attributable to
a prospect of profitability. The vineyards covering large surface areas now
expanded even further, to more than 100 ha (250 acres), while those cover-
ing less than 10 ha (25 acres) were soon uprooted. This, in turn, increased
the average cultivated surface area from 5.8 ha (14.3 acres) in 1990 to
9.2 ha (22.7 acres) in 2017, which contributed to and improved productive
efficiency.
The number of vineyards has increased by 1.2% annually since the year
2000, in a context where larger estates evidenced higher growth rates than the
smaller establishments. A survey conducted in 1990 revealed the existence of
36,000 estates. In 2017, however, slightly more than 24,000 estates remained,
showing a 30% decrease and, consequently, the concentration of vineyards
among fewer estate owners. Many of the wine producers who abandoned the
activity did so because their small-scale production, based on growing table-
wine grapes, was no longer profitable.
Besides the increase in size, Argentinean vineyards experienced a change in
technology as they began incorporating modern irrigation and protection sys-
tems (especially against hail) as well as new vine training systems. Today, most
vineyards resort to the pergola-training system, currently used in more than
121,000 ha (300,000 acres), although the last few years witnessed the expan-
sion of the trellis system, now covering more than 79,000 ha (195,000
acres)—a similar figure as that of high-quality wine grape expansion.
Across certain warmer areas of Argentina, the vine pergola-training system
is the preferred option to improve grape protection, even though higher-
quality vineyards will typically make use of the trellis system.
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164 J. Merino
7.2.7 Raw Material Market
Argentina’s raw material (grape or bulk wine) market is very well developed.
In the last decade, about 25% of the grapes intended for wine production
were sold to independent producers. In addition, about 8% of the total rep-
resented bulk wine sales from wineries that were not able to bottle their
production on their own. In other words, the raw material market accounts
for one third of the total number of bottled wines. Given the type and qual-
ity of raw materials, the bulk wine market is intended for low-price wines,
while the grape market aims at medium- to high-end wines. The former
market involves estate owners who have made large investments in their pro-
duction in order to meet the large wine producers and bottlers’ requirements.
Lastly, it should be mentioned that high-quality grapes, intended for high-
end wines, are generally grown by the same wineries that make and bottle
the said wines.
The grape market is typically managed by means of agreements between
wineries and producers. Some have been able to maintain their commercial
relationship to this day, after many years of business. The larger wineries will
regularly visit the vineyards and make suggestions on vineyard management.
Great trust is developed in this type of relationship, since most grape prices
will be defined after the harvest, once the wineries have already crushed the
berries. In the case of bulk wine, many wine agents will offer the product to
different potential buyers and receive a commission upon closing the deal.
Finally, some producers who do not bottle their own production will nor-
mally grow their grapes in wineries and ultimately sell their wine to them.
7.2.8 Revenue in the Primary Sector
The total revenue of the viticulture sector has been calculated taking into
account the figures for grape sales and the considered value of the finished
product owned by the wineries. Over the last 15 years, oscillations in grape
prices and the sector’s strong transformation process have been two important
factors affecting revenue (Fig. 7.3). In its early stage, the participation of red
grapes was nowhere near the levels it would reach between 2004 and 2009. In
these years, red grapes were able to maintain their revenue due to productivity
expansion and stable prices. In 2010 and 2011, wine producers’ turnover
increased because of the price spike due to the scarce availability of grapes, the
grim result of two consecutive poor harvest seasons. At that time, the demand
for red grapes shifted to regions where prices were lower.
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40
35 32.7 33.5
30 28.2
26.6
24.6 23.8
25 22.7 23.5
22.5
20.7 20.1
20 17.9
16.5
15
11.6 12.3 12.2
10.1 9.7
10 9.1
0
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total Red Variees White variees Rosé Variees
Fig. 7.3 Annual revenues in the viticulture sector (BB AR$ - Dec. 2017). (Source: Area
del Vino)
As from 2004, the demand for varietal wine exports grew significantly.
This, in turn, increased the sector’s profitability and boosted expansion given
the advantageous exchange rate in place.
The decline in pinked-skinned grape production has been independent
from economic transformations and is rather the result of opposite interna-
tional and domestic demand trends.
When calculating the average revenue per hectare across different varieties,
Malbec comes across as the outright winner, outperforming every other vari-
ety given its greater expansion process. Pinot Noir ranks second, although it
should be noted this variety is much more developed in certain regions.
7.3 S
tructural Features of the Winemaking
Sector
7.3.1 Average Winery Size
A study conducted by the Argentinean Viticulture Observatory (Observatorio

Vitivinícola Argentino) classified different companies operating in the viticul-
ture market. The indicator used was the companies’ commercialized volume
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166 J. Merino
for each establishment in the country. A “domestic market profile” or “export

market profile” was created and assigned depending on the companies’ main
line of work. The study did not include wineries selling bulk wine alone, as
they were considered to belong to a niche market that sells wine to the same
wineries that will later on commercialize it as a finished product.
Additionally, the wineries were classified according to the size of their
annual volume production into the following categories: small (less than 1
million liters), small/medium (1–4.99 million liters), medium/large (5–9.99
million liters), and large (more than 10 million liters). In Argentina, there are
719 establishments, 62% of which (477 establishments) showed a domestic
market profile, while the remaining 272 tended toward the export profile.
Mendoza played a significant role in terms of total figures, especially in the
ratio of total export production, which is clearly different from that in other
provinces. Out of the 568 establishments registered in Mendoza, 58% fall
within the domestic market sphere while 42% exhibit an export profile. When
analyzing them by size, most of the establishments with an “export profile”
(216 out of 239) are small (with a production volume below 1 million liters
per year). Twenty wineries fall within the intermediate range, and only three
have been described as large (producing more than ten million liters per year).
The large establishments with an export profile manage 72% of the total vol-
ume, whereas the small ones participate in only 8% of overall production.
The majority of cases in Mendoza, 329 establishments in 2013, have a
domestic market profile. When classifying them by size, small companies,
once again, comprise 87% of the total. At the other end of the continuum, 15
wineries fall under “large companies”, while only 29 are intermediate. The
other vinegrowing provinces offer a very different panorama, predominantly
oriented to the domestic market, except for the province Neuquén, which
shows almost even proportions between domestic and external profiles. The
provinces of Salta, Catamarca, and Río Negro all show a strong predominance
of domestic market wineries (more than 80% in the total number of compa-
nies and more than 95% in terms of volume). San Juan, the second largest
vinegrowing sector in Argentina, features 75% of its wineries with a domestic
profile (45 establishments) that makes up for 96% of the province’s total vol-
ume. San Juan also features 15 companies with an export profile (25%) that
accounts for 4% of the province’s total volume. In the case of La Rioja, figures
reveal a small number of overall participants: only eight establishments, five of
which have a domestic profile and, three, an export profile.
A comparison between the results found in 2013 and those in 2005 reveals a
tendency toward reducing the share of domestic-market-profile companies while
favoring that of export-market-profile companies. This is evident in the cases of
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Mendoza, San Juan (showing a drastic change in this respect), La Rioja, Río
Negro, and Neuquén. Salta and Catamarca, on the other hand, displayed alto-
gether an opposite situation. With respect to the company distribution accord-
ing to size, no significant differences were observed between 2005 and 2013.
7.3.2 Strategic Focus
The Argentinean viticulture industry operates with different strategic focuses,

partly influenced by the favorable export market that has been in place for the
last two decades. Actually 350 companies devote themselves to export, while
only 190 operate at a purely domestic scale. Large macroeconomic changes
have caused a certain turmoil for wineries’ strategic positioning, which today
require a more competitive focus.
Figure 7.4 illustrates a focus group composed of 91 wineries (chosen by
Área del Vino Consulting Group) representing more than 75% of Argentina’s
2,500
2,000
7 (7,5%) companies focused
Average sales price ($ Dec 2016/Box)
on differentiation
1.1% of turnover
1,500
48 (53%) companies focused

with difficulties of strategic
focus
1,000 13% of turnover
22 (24%) companies
focused on volume
85% of turnover
500
14 (15%) companies under

performers
1% of turnover
0
0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00
Log of Volumen (Boxes)
Fig. 7.4 Sales price vs. volume. (Source: Area del Vino)
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168 J. Merino
wine total revenue and showing a traditional representation of price quantity.

Based on the said diagram, the following conclusions can be made:
• 7.5% of companies focus on elevated prices.

• 24% of companies focus on high volume.
• 68% of them lack competitive focus—increased competition will affect
them considerably.
• Companies focused on differentiation need to work actively on marketing
and inventory control.
• Companies with strategies in volume need to work on consolidating their
position by means of an active price policy.
7.3.3 Origin of Capital
Today, 31% of viticulture companies in Argentina constitute foreign invest-

ment operations, whereas 69% correspond to Argentinean capital. The arrival
of foreign investors occurred mainly during the 1990s and ended between the
years 2000 and 2005.
Among Argentinean companies, 65% are corporations, 30% constitute
family-owned businesses, and 15% are cooperatives. It should be noted that the
smaller cooperatives have joined and merged into the Argentine Federation of
Viticulture Cooperatives (FECOVITA), currently positioned as one of the
largest companies in terms of total sales. With respect to family-owned winer-
ies, some have been operational in the country for more than 100 years, with
the vast majority of them tracing back their roots to Italian or Spanish origins.
Lastly, the main foreign investors who own wineries in Argentina are from
Chile (32%), France (21%), Austria (11%), the Netherlands (7%), and
Portugal (7%). The last few years have also seen the arrival of investors from
countries such as the United States, who have purchased small wineries.
7.3.4 Internal and External Variables Affecting

Profitability
1. Consumer preference: transformations in the global and domestic demand

for wines have been intimately connected to changes in consumers’ prefer-
ences. This is true of many countries, especially in the New World, where
varieties that can adapt to these preferences are often created. Vineyards in
Argentina experienced a restructuring process, especially between 2000 and
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2010, similar to that experienced worldwide. The expansion of Malbec

accounts for a striking difference and one that may largely explain the success
of Argentinean wines. Argentinean wines constitute a local phenomenon
whose promotion to other winegrowing regions took a relatively longer time.
However, the demand for Malbec will continue to grow in the years to come,
although perhaps not at the same rate as before.
2. Production cost: Argentinean viticulture faced a marked tendency toward
increasing costs in the last few years, due to the rising labor cost relative to
wine and grape prices. This, combined with the increasingly difficult man-
agement of human resources, especially temporary workers, resulted into
the considerably widespread mechanization of harvest.
3 . Fall in demand of export wines: Argentinean wines experienced double-
digit growth rates until 2010, when the consequences of several macroeco-
nomic changes pushed up inflation. Policies seeking to change foreign
exchange rates as from 2010 have delayed exchange rate adjustments, mak-
ing export operations difficult. Consequently, low-price wines lost com-
petitiveness and were left outside export operations, an event that had a
negative impact on the price of the raw material that was acquired largely
by the grape-producing wineries.
4 . Fall in domestic demand: grape varieties covering large acreage were
intended for medium- and high-end wines, both in the global and domes-
tic markets. In recent years, recession in Argentina has taken a heavy toll
on consumers’ income, bringing the demand for wine and grapes to a
grinding halt.
For a few years now, the volume of wine sold in the Argentinean winemak-
ing sector has been declining. A decade ago, 40 million extra wine cases were
sold with respect to today. However, the domestic and export markets reported
a dramatic decrease five years ago, and, in 2017, the total number of wine
cases sold was 125 million.
With sporadic variations, Argentina’s domestic market has been declining
over the past 30 years. It finally reached a plateau in 2008, making any price
changes directly dependent on price movements experienced by the products
placed at the lower half of the wine pyramid, especially regarding Tetra Brik
wine shipments. In parallel, the foreign market has shown a reduction in vol-
ume, both for bulk and bottled wines. In 2016, in total, this number has hit
its lowest mark in the past decade.
The combination of smaller volume and lower prices led the industry’s total
revenue to a sum below that obtained in 2006 and 18% below its all-time
high, recorded in 2011. The industry has been suffering consecutive decline
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170 J. Merino
in sales for five years in a row, resulting in very serious effects on several fronts,
including:
The Fall in Grape Price The price of raw material is one of the main items
affected when revenues decline. An asset with no alternative use in the cur-
rent economy, its value is flexible, unlike that of other goods and services
consumed by the industry. As a consequence of low prices, winemakers have
had to cope with a very harsh reality in the past few years, sometimes work-
ing despite evident losses, which resulted in disinvestment and lesser quality.
Smaller wineries, however, were less likely to transfer this adjustment to
vinegrowers as they have a larger proportion of their own grapes for
winemaking.
Disinvestment Between 2010 and 2015, according to information provided

by wineries and collected by the Wine Division from Banco Supervielle, the
industry’s total assets fell about 19%, while fixed assets fell by 33%. This
means that the industry today shows one third less competitive capacity in
terms of investment operations in vineyards, machinery, and other fixed assets.
Concentration As with every economic process subject to adverse external

conditions, the sector tends to concentrate on the stronger companies that
show a better capacity to resist these conditions. Five years ago, companies
whose sales worth was above ARS 500 million per year represented more than
78.7% of sales of the Argentinean viticulture industry, whereas now they rep-
resent 81.3%.
7.4 D
istribution and Relationship Along the
Distribution Chain
7.4.1 Argentinean Wine Markets
Of the 125 million cases sold in 2017 (Fig. 7.5), 80% were destined for the
domestic market. In terms of revenue, this meant 64% revenue originating
from the Argentinean market and 36% from export operations. This clearly
shows the difference between export and domestic prices, the average export
prices being much higher than the domestic ones. Argentina has been increas-
ingly concentrated on producing wines for the medium- to high-end price
ranges in global markets.
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Total market in volume (Million of boxes) Annual Revenues of wine (BB $ Dec 2017)
63.2 62.7
156 164 165
146 139 144 152 150 140 144 60.1 59.9
123 124 119 115 134 125
108 109 112 115 110 114 105 100 57.3
56.1 55.5
51.2 51.8
40 46 41 47.6
33 31 30 35 35 29 30 29 25
43.1 42.4 43.7 43.1
41.8
40.2
38.9
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
36.2 35.7
34.9 35.0
Total Domestic market Exports
30.5
27.7 27.6
Average sales price ($ Dec 2017/Box)
700 21.3
623 19.9 20.6 19.6 19.9
585 18.4
566 551 577 553 16.3
17.5
16.1 17.2 16.0 15.5
499 497 501
447 455 437 489
391 395 400 371
328 342 337 331 327 346
386 395 361 369
338 323
283 292 295 267 265 276
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Domestic market Exports Total Total Domestic market Exports
Fig. 7.5 Total market in volume (millions of cases), average sales prices (AR$ Dec.
2017/case), and annual revenues of wine (BB AR$ Dec 2017). (Source: Area del Vino)
When it comes to destination countries, the United States has been the
most significant one in the last few years, importing 32% of Argentina’s total
bottled wine exports. The United States has been a steady and very dynamic
market for Argentinean exports, especially due to Americans’ preference for
Malbec. In the second place, the United Kingdom accounts for 18% of the
total export operations. Argentinean wines experienced a substantial change
in focus in the UK market over the last decade. In the last years, efforts have
been directed to importers with large participation shares of on-trade sales as
well as off-trade chains with higher prices. After many years of continuous
hard work, China has become a top market, joining Canada, Brazil, and the
Netherlands.
7.4.2 Changes in the Domestic Market
The domestic wine market has followed behavioral patterns that mirror those
of the global markets. For more than a decade, international discussions have
ensued about the changes in consumer habits leaning toward higher-price
wines, a phenomenon known as premiumization.
Several causes may help explain this change: firstly, older generations, with
higher incomes, are slowly evolving into connoisseurs who are willing to pay
higher prices for the wines they seek. Additionally, the 2008 crisis largely
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172 J. Merino
changed at a global scale the amount of wine that was consumed at home
versus that which was consumed outside. Rather than paying high prices at
restaurants, consumers prefer to buy wines on off-trade channels, which
entails the possibility of purchasing higher-quality wines at lower prices when
compared to hospitality establishments. This behavior, which started after the
crisis in 2008, has remained valid until the present days.
In the case of Argentina, this process has been more accentuated, as the
price pyramid started at a lower baseline than that of other countries. The
total volume of wine consumption fell at an annual rate of 1% in the last
decade. In this context, consumption of low-price wines, sold in Tetra Brik
packaging, fell at an annual rate of 1.8%. However, bottled wine grew at an
average of 1.2% annually, an early sign of premiumization. The phenomenon
becomes increasingly evident when analyzing the evolution of bottled wines
across different price ranges. Those at the bottom range (ARS 164 per case)
fell at a rate about 5% annually, while the top price segment (ARS 835 per
case) increased their volume at an annual average rate close to 19%.
It should be highlighted that sparkling wines and frizzes (sparkling wines
typically aimed at a fun, young adult segment) have expanded greatly. This
event not only signals a premiumization but also a change in consumers’
behavior. Consumers seem to be shifting from still to sparkling wines, which
additionally constitute a strategic introduction of a younger audience and of
women into the wine market. This very marked change had a positive impact
on those wineries leaning toward premium wine lines, as they could now
improve their profitability. In turn, the wineries working in the lower price
segments resorted to more aggressive strategies in order to maintain their posi-
tion on the shelf, hoping for better consumption habits worldwide.
Despite the impressive sales growth volume evidenced by high-end wine
lines, they still represent a small percentage of the total. In 2016, bottled wine
accounted for almost 55% of the total volume, while higher price ranges, at
ARS 422 per case, accounted for only 7.6%. The share of sparkling wines is
about 4.6% of the total of volume. This market sector, it should be noted,
represents 12.2% of the overall market that breaks down into 200 wineries
that produce a total volume of 13.6 million cases, with an average of 68,000
cases per winery, figures obviously much higher for large wineries.
In the domestic market, the revenue derived from bottled wine represents
76% of the total revenue, and it has been growing at an average rate of 2% per
year. The bottled wine market is clearly very attractive for investment, proudly
showing considerable revenue both domestically and internationally. Due to
their higher prices when compared to those available domestically, external
markets have offered substantial investment opportunities.
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7.4.3 Sales Channels in the Domestic Market
The current domestic wine market may be characterized as relatively saturated and
highly competitive. A variety of elements serves to illustrate the said features:
Retraction from the Market Over the past decade, the domestic wine market
has been declining in volume. Given the projections for population growth,
this scenario will ultimately create a market that becomes saturated with
brands and competitive wineries.
Reorientation of Businesses and Wineries Many wineries that became oper-

ational during the time of favorable exchange rates and that worked almost
exclusively for international markets have to revise and change their strategy,
which translated into a significantly increased competition in the domestic
market.
Rise in the Commercial Chains’ Negotiation Power Commercial channels,

especially large supermarkets, commercialize a relatively small portion of the
total number of brands and wineries. The requirements for inventory rotation
are essential for these sales channels, but few wineries have the capacity to
comply with the said conditions. Many wineries do it to promote their brands,
but as they begin to lose profits from a given channel, the endeavor becomes
less appealing from a business perspective.
Discount Policies With sales plummeting over the past few years, the busi-
ness strategies designed by large retail alcohol beverage stores and wine shops
aimed at offering discounts and special sale prices. These strategies are often
devised by the stores themselves, in an attempt to attract new clients who will
buy other products or who will contribute to product rotation. These strate-
gies sometimes also include a variety of payment options, such as credit or
debit cards, or the creation of a store club membership offering discounts to
its members. Only large wineries with a large production volume, however,
are able to take the impact of this type of deals, and very few can negotiate not
being a part of them.
The current competitive climate is making commercialization costs grow sig-

nificantly. According to a focus group covering 82 wineries, the reported com-
mercial cost on their balance sheets was 18.9% of total sales in 2010 and rose
to 21.7% in 2015. For promotional and discount-related activities, the cost for
companies with a large domestic market share was about 7% of total sales.
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174 J. Merino
Wineries in Argentina resort to various channels for sale. The proportion of

on-trade wine sales (on-premise consumption) is about 17% of total volume,
a figure similar to the worldwide average. Wineries will typically use distribu-
tors for the on-trade channel, while large-scale wineries will have their prod-
uct transported directly.
Because of its promotional appeal, the on-trade channel is a very much
coveted space. In fact, many wineries will seek to buy their own space into the
wine lists. Beyond the type of customer visiting the hospitality establishment,
measures need to be taken in order to preserve the wine properly. Additionally,
wine-related sales skills are important. Furthermore, wineries should consider
the risks associated with the sustainability of the hospitality business.
In the off-trade distribution channel (off-premise wine consumption),
according to a survey conducted by Kantar Worldpanel in 2015, sales in large
supermarkets represented 24% of the total volume and 30% of total revenue,
similar to the global total. When including self-service or grocery stores with
a format similar to that of small supermarkets, the proportion grew to 71% in
volume and 72% in value, the difference being that self-service or grocery
stores sell their products at higher average prices.
Although representing a smaller market share, alternative distribution
channels are available. E-commerce stands as a very interesting option for
businesses eager to sell their wine on this platform. This type of channel, albeit
small, is growing at a rapid pace.
7.4.4 Winery Participation in Sales Channels
A huge challenge for many wineries in Argentina, the access to commercial

venues from where to develop their winery’s presence is key. Out of the 350
wineries participating in foreign markets with more than 2000 brands, only a
reduced number are able to take active participation in the domestic market.
The Argentinean supermarket distribution channel encompasses more than
60 companies. Of the total number of companies operating in the country, a
reduced number, nonetheless, comprised by both national and international
chains, represent a large percentage of total revenue.
Argentinean specialist stores, on their part, about 1000 establishments
(some of these being more difficult to categorize as they sell other products as
well), are scattered across the regions following the trends set by population
and income distribution. However, a reduced number of specialist stores are
currently working following a chain-like format, and, as such, they are run-
ning operations not only in main locations such as the city and province of
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Buenos Aires but also in other regions of Argentina. Supermarkets have not
been the only ones to develop online sale platforms for their customers, with
leading specialist stores also developing their own, thus leading to a systematic
and continuous growth in e-commerce.
With respect to winery presence in supermarkets and specialist stores, a
small sample has been gathered, composed of the largest companies from each
category, accounting for a total of 13 businesses, many of whom work jointly
with chains throughout the country or have developed online platforms.
These large chains, then, commercialize the wines from 189 wineries, a figure
that represents half of the companies that export wines.
Fifty-five percent of all wineries have access to both supermarkets and large
supermarkets. In other words, these establishments are responsible for selling
the wines of only 104 wineries. In the case of specialist stores, on average, they
sell the products from an increased number of wineries (139) and feature
wines from smaller establishments that do not run business on larger channels.
Only 54 wineries participate in both channels. Incidentally, these wineries are
the largest ones in the country, many of them holding a dominant position in
foreign markets as well. These figures, however, fail to reveal the fact that the
supermarket with the most comprehensive winery list includes only 68 estab-
lishments, while the least comprehensive supermarket, with a modest domes-
tic distribution, lists only 40. Specialist stores, on their part, cover 134 in the
best-case scenario, while only 24 on the opposite end. This analysis clearly
reveals not all wineries manage to be present across all channels.
It becomes clear, then, that the main off-trade sales channels leave aside a
large number of wineries with their own wine brand. Many of these wineries
have no participation in the domestic market as they only perform export oper-
ations. Others, however, will sell in small regional markets, while some have
started to develop direct-to-consumer sales strategies as an alternative profitable
option, in a scenario where wine tourism is of outmost importance.
Only 20 wineries (some of which belong to a single economic group)
represent more than 85% of the total sales of wines from supermarkets.
This shows that the said wineries focus on this channel in particular and
hold the power to negotiate active participation on store shelves, in addi-
tion to maintaining rotation standards and margins that signify good busi-
ness for commercial venues. The explicit nature behind the power of
negotiation is evident in the ratio between the price paid by the customers
and the price received by the wineries. On average, wineries receive 52% of
what is paid by the consumer, which is much lower than many products
with less added value.
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176 J. Merino
7.5 Conclusion
The Argentinean viticulture sector has undergone striking transformations in
the last quarter of the century, from the process of uprooting low-quality
grapevines covering 72,000 ha (178,000 acres) to the plantation of highly
demanded grapevines extending over 77,000 ha (185,000 acres), 30,000 ha
(74,000 acres) of which correspond to Malbec. Additionally, production
capacity has increased, combined with the arrival of national and interna-
tional investments in the sector. Finally, two commercial developments are
worth mentioning: wine premiumization in the domestic market and their
export to the main international markets. The last five years have witnessed an
adverse economic context in Argentina, which has slowed down the momen-
tum for many wineries. In the next few years, lower inflation rates and a policy
for remaining open to the world will allow the Argentinean wine industry to
expand and evolve into an increasingly professional industry with an even
sharper strategic focus, even, perhaps, with fewer companies operating.
References
Area del Vino – http://areadelvino.com
Bolsa de Comercio de Mendoza - https://bolsamza.com.ar
División Vinos Banco Supervielle - http://www.supervielle.com.ar
Euromonitor Internacional - http://www.euromonitor.com/
Instituto Nacional de Vitivinicultura (INV) - http://inv.gov.ar
Instituto Nacional de Tecnología Agropecuaria - https://inta.gob.ar
Kantar Worldpanel - https://www.kantarworldpanel.com/ar
Observatorio Vitivinícola Argentino - http://observatoriova.com
Organización Internacional de la Vid y del Vino - http://www.oiv.int
Nielsen Company - http://www.nielsen.com
Trade Map - https://www.trademap.org
Wines of Argentina - http://www.winesofargentina.org
Wine-Searcher - https://www.wine-searcher.com
mmorag@uchile.cl
8
The Chilean Wine Industry
G. Marcos Mora
8.1 Innovation, Production and Geographic

Distribution of Chilean Viticulture and Wine
To successfully face the marketing of wines in the domestic and international
markets, especially the latter, the Chilean wine industry has had to increase the
quality of their products and conform to the requirements of target markets.
This has involved major industry innovations, which occurred in the 1980s
and 1990s (Alvarado 1999; Lima 2015). Some of the innovations were related
to the use of stainless steel tanks and inert gases (Mora et al. 2014), pneumatic
presses and oak barrels (French and American) for a limited number of years
for the “aging” of the wines (Lima 2015). In this process, improving quality
involved setting wines to market requirements. It needed high-quality grapes,
which is consistent with that reported by Farinelli (2013) and Zago (2007),
who stated that the quality is not only determined by the alcohol content of
the grapes. In this sense, some vineyards are dedicated to producing super-
premium wines and icons, usually made by their own production of grapes or
on leased land, which can manage and/or select the grapes they use, in order
to have quality control of the production. According to Farinelli (2013), from
1977 to 2011, most of the major vineyards in Chile incorporated the latest
technology and a professionalization of the production process that allowed
G. M. Mora (*)
Faculty of Agricultural Science, Department of Agricultural Economics,
University of Chile, Santiago, Chile
e-mail: mmorag@uchile.cl

https://doi.org/10.1007/978-3-319-98633-3_8
mmorag@uchile.cl
178 G. M. Mora
them to generate higher-quality wines for the i nternational market. According

to Lima (2015), this was mainly due to foreign direct investment (in the form
of joint ventures), which enabled local producers to quickly incorporate tech-
nology and know-how in the production of quality wines in exchange for
better access to international markets. The super-premium brands that are
produced in the country for export are usually the result of these joint ven-
tures, but also full domestic investments currently exist. Moreover, it should
be noted that for both domestic and international markets, there is a major
proportion of low-end wines or streams. For the domestic market, nearly 50%
are wines sold in box (bag in box), and about 70% of exports correspond to
wines in bulk and bottled with prices below $30 a box.
Chile is a country with a great diversity of climates and soils allowing the
development of a highly diversified viticulture. At the aggregate level, soils
range from a basic in the north to more acid pH in the south; precipitation
also increases from north to south, and thermal fluctuations are smoothed
from east to west. Consequently, the situation described allows the expression
of different varieties of grapes to reach the excellent potential if the variety-
territory relationship is well chosen. Thus, the coastal areas of Chile are more
appropriated for white grape varieties, such as Sauvignon Blanc and
Chardonnay, and the inner areas favor red varieties, such as Cabernet
Sauvignon. Below is a map with the different Chilean wine regions, which
correspond to those indicated in the Agricultural Decree 464 of 1994, which
established viticultural areas, and it provided rules for their use. Importantly,
there are significant differences between the Chilean system designation of
origin and employees in Europe. The Chilean system operates in an environ-
ment less regulated than the European. In Chile there is no figure of Regulatory
Council with the powers it has in Europe; for example, Europe has the ability
to set maximum production per hectare to ensure wine quality. In Chile,
however, the responsibility for overseeing the procedure for granting certifi-
cates of designation of origin is carried out by private companies, previously
the Agricultural and Livestock Service (AGS) has selected and authorized.
Of the 5.1 million hectares of arable land, viticulture represents approxi-
mately 137,000 hectares or 2.5% of the total. However, wine exports to 130
countries provide more than 1800 million dollars1, and it generates more than
100,000 jobs, and it is expected that exports will reach 3 billion dollars in
2020 (ODEPA 2014), and if we add the domestic market, the wine sector
would generate total sales of around 2500 million dollars. If you consider that
the Chilean GDP, according to the World Bank, is around 277,200 million
Exchange rate at 17 February 2016: 704.92 Chilean pesos per dollar. Source: Central Bank of Chile.
1
mmorag@uchile.cl
The Chilean Wine Industry 179
dollars, the share of the wine industry could be seen as marginal; however, it
is necessary to take account of the contribution to GDP from other sectors
involved in the wine business, such as transportation, logistics and communi-
cations, other manufacturing industries (glass, cardboard) and restaurants.
Accordingly, it is an important sector for the Chilean economy for its capacity
to generate productive linkages and its high added value, especially in the case
of bottled wines.
According to Mora et al. (2014), the production of wine has an important
impact on regional development, from the Coquimbo Region to the Araucania
Region—it is one activity that takes place in much of the territory and has a
strong impact on agricultural activities and labor employment as well as on
demand of products and services. In recent times it has been extended to the
regions of Atacama in the north and Lagos in the south. The wine industry is
a cluster with a large capacity to generate added value, widely labor-intensive
and of regional coverage; it involves a large number of industries related to
suppliers and is involved in the exporting process, and it uses an extensive
network of transport and communication for the development of its activities
and has great potential to add value to their products.
Areas with vines intended for winemaking in the country are located
between the regions of Atacama and Los Lagos, including the Metropolitan
Region. According to the figures below, 74% of the vineyards correspond to
red varieties and 26% of white varieties, mainly represented by Cabernet
Sauvignon, Merlot and Carmenere for reds, and Sauvignon Blanc and
Chardonnay for whites. Below is a chart with a greater number of varieties,
highlighting Syrah and Carmenere, which have increased significantly in
recent times.
Regarding the evolution of the vines, it is important to highlight the sus-
tained growth of Carmenere, Syrah, Pinot noir, Cabernet Franc and Sauvignon
Blanc (Table 8.1). However, it is necessary to pay attention to other grape
varieties, which have also had a sustained and significant increase, and they
approach 20,000 hectares. Behind this figure there is the incorporation of
vines traditionally not produced in Chile such as Tempranillo, Viognier and
Malbec.
In Chile, wine production is based mainly on a set of grape varieties of
French origin and a local variety called Country (Pais), which currently
accounts for about 5% of the total area of the Chilean vineyard. In 1985, the
surface of this variety was nearly 30,000 hectares or approximately 25% of the
current area, while Cabernet Sauvignon, the main cultivated variety at pres-
ent, only reached just over 8000 hectares. Also, the first and largest change
occurred between 1985 and 1994 with the increase from 245 to 4150 h ectares
mmorag@uchile.cl
180 G. M. Mora
Table 8.1 Evolution of wine grape acreage by variety (ha)

2010 2011 2012 2013 2014
Cabernet Sauvignon 38,425.7 40,837.0 41,521.9 42,195.4 44,176.4
Merlot 10,640.2 11,432.0 11,649.1 11,925.2 12,480.1
Chardonnay 10,834.0 10,970.4 10,570.9 10,693.9 11,633.8
Sauvignon Blanc 13,277.8 13,922.3 14,132.0 14,393.0 15,142.3
Chenin Blanc 55.8 55.8 55.8 55.8 56.0
Pinot noir 3306.8 3729.3 4012.5 4059.9 4195.9
Riesling 400.3 409.4 442.2 424.4 420.1
Semillón 929.7 959.0 920.9 902.5 968.1
País 5855.1 7079.2 7247.5 7338.7 7652.6
Carmenere 9502.0 10,040.0 10,418.1 10,732.5 11,319.5
Syrah 6886.8 7393.5 7744.6 7933.1 8432.2
Cabernet Franc 1345.0 1451.0 1533.3 1591.3 1661.5
Otros 15,371.7 17,667.6 18,389.1 18,116.2 19,453.9
Total 116,830.8 125,946.2 128,637.9 130,361.7 137,592.4
Source: Catastro vitícola de Chile 2014. SAG, 2014. División de Protección Agrícola y
Forestal Subdepartamento de Viñas y Vinos, Inocuidad y Biotecnología Sección
Viñas y Vinos
of Chardonnay, which was rigged to excellent commercial with the expansion

of large vineyards near Aconcagua (Del Pozo 1998). Moreover, it should be
noted that a number of hectares planted with vines still exist in the country
that have not been declared to AGS because they correspond to micro farms
(less than 0.5 hectares of planted vineyards), especially in the VIII region
where Country is the main producing variety, also called Mission or Creole.
However, according to vineyards registered by SAG 2014, there has been a
sharp decline of this variety, which in 2006 approached 15,000 ha, and now
it does not exceed 8000 ha.
In Chile the vast majority of wine grapes already use some irrigation sys-
tem: 85% of cultivated hectares of white wine grapes and 90% of the hectares
for wine grapes ink have some type of irrigation (micro-irrigation, drip, spray,
gravitational, etc.) (Table 8.2). In the red varieties, the grape País is mainly
grown in dry land. In this regard, rainfed vineyard is usually located in gra-
nitic and undulating topography, and soils show a marked water deficit, which
translates into a vegetative weakening and low yield (1000–4000 kg per hect-
are). The variety País is a grape that records low prices, generally 50% less than
the European varieties. However, in recent times there have been new prod-
ucts developed from this variety, and they are expected to contribute to added
value; one of them is the foaming grapes and the other sour grapes, both
having had the co-funding of the Foundation for Agrarian Innovation and the
Ministry of Agriculture of Chile. Their yields are relatively low, on the order
of 4000 kilos per hectare. The rest of white varieties and inks corresponding
to fine strains are grown under some kind of irrigation.
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Table 8.2 Cultivated area (ha) with grapevines in irrigated, rainfed and tended irriga-
tion areas
Water regime
Region Irrigated Rainfed Tended irrigation Total
Tarapacá 5.00 5.00
Antofagasta 4.97 4.97
Atacama 117.42 117.42
Coquimbo 3371.67 11.90 3383.57
Valparaíso 10,137.29 18.40 6.50 10,162.19
Lib. Bdo. O’Higgins 46,610.97 679.20 91.90 47,382.07
Del Maule 46,385.52 6420.32 690.67 53,496.51
Del Bío Bío 2223.09 7052.06 292.90 9568.05
Araucanía 27.06 27.90 54.96
De los Lagos 19.00 19.00
Metropolitana 13,398.30 0.40 13,398.70
Total nacional 122,300.29 14,198.28 1093.87 137,592.44
Source: ODEPA
Regarding the vines-driven systems, it can be mentioned:
• In trellises: system was introduced in Chile in the second half of the nine-
teenth century by French technicians. Driving means consist of a frame
and wires that support for lifting the vine at the approximate height of 1.2
to 1.5 meters, allowing better illumination of fruit and facilitating the work
of care and harvesting. In addition, this technique allows the mechaniza-
tion of vineyards, since it is currently one of the most commonly used
forms of driving, mainly in vineyards intended for the production of pref-
erably fine wines from the Central Valley (Table 8.3).
• In parronal: a driving system with heights of 1.8 to 2.0 meters, with hori-
zontal trellis. It is widely used for the production of table grapes, although
it is also used in some vineyards of Cabernet Sauvignon.
• In head or Gobelet: it was introduced by the Spaniards in the period of the
conquest, so it is the oldest driving system; although this system is not suit-
able for the production of good-quality wines, it is still used in southern
Chile and in dry vineyards.
8.2 Chilean Wine and Its Industrial Organization

Small vineyards in general are traditionally managed with low use of agro-
chemicals, facing greater technological backwardness, due to the lack of capi-
tal and poor access to financing, as well as other limitations related to soil
fertility—low or excessive slope—and restricted access to water, thereby limit-
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182
Table 8.3 Chile: surface area of vineyards according to conduction system (ha)
G. M. Mora
Conduction system
Double High Low Scott Smart
Region Head curtain trellises trellises Lira Others Parron Henry Dyson Total
Tarapacá 5.0 5.0
Antofagasta 5.0 5.0
Atacama 24.4 93.0 117.4
Coquimbo 1.5 757.6 1310.7 8.9 109.8 1195.1 3383.6
Valparaíso 25.3 6627.1 3151.5 34.8 263.5 60.0 10,162.2
Lib. Bdo. 71.1 288.5 21,879.8 14,794.0 1116.6 988.7 8105.6 125.2 12.7 47,382.1
O’Higgins
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Del Maule 4753.1 668.9 15,604.5 23,107.4 610.5 853.2 7877.8 21.2 53,496.5
Del Bío Bío 6401.0 2053.7 782.1 69.4 97.7 16.4 147.9 9568.1
Araucanía 4.4 49.1 1.5 55.0
De los Lagos 0.2 18.8 19.0
Metropolitana 7.8 56.2 6849.5 5356.8 139.1 121.4 868.0 13,398.7
Total 11,264.4 1013.5 53,831.3 48,547.1 1979.3 2434.2 18,215.8 294.2 12.7 137,592.4
Source: Catastro vitícola 2014
ing opportunities for productive transformation. Its production is oriented to

the local market of wine in bulk, and a significant percentage is marketed
through informal channels. On the other hand, large traditional vineyards
produce a wide range of wines for different consumers, both in domestic and
foreign markets. They have large vineyards and have been pioneers in the
opening and expansion of the export market. They achieve significant produc-
tion and sales levels, and have a significant share of the domestic and foreign
markets. In recent decades, there have emerged boutique vineyards and
medium-sized export-oriented fine wines that have great capacity for innova-
tion in the productive and commercial technology areas. They have generated
direct distribution channels in different international markets, mainly, spe-
cialty shops and restaurants.
8.2.1 Investment Costs and Wine Grapes
According to Lima (2015), in the case of fine strains, the producer must incur
a large initial investment to plant them (using a trellis system and drip irriga-
tion). Also, you must wait at least two years to start production, which goes
up to the fifth year just to achieve maximum production. When you consider
the costs of planting and the first two years without production and fixed
costs for the producer, who must incur mandatory cost to start production,
which could eventually be recovered if he sells or leases the plantation to a
third party, they represent between 16% and 21% of the total cost of produc-
tion of the vineyard throughout their economic life (20 years).
Also, if you consider a return rate of 10% annually for the investment,
which must be recovered in 20 years, the average total production cost per kg
would rank between 0,15 and 0,33 dollars depending primarily on the level
of production that can be achieved in the vineyard. Grape plantings, if prop-
erly maintained, can have a longer production than the usual 20 years (between
50 and 100 years); after recovering the initial investment, it becomes relevant
to recover, at least, the annual costs of production, for which we take as a
proxy for the average annual cost of production in the vineyard. This cost
would be located between 0,12 and 0,27 dollars/kg produced.
Lima (2015) states that, with regard to the Country vine grape strain,
whose production dates back to colonial times, it is important to know the
average annual cost of production, which ranges between 0,10 and 0,21 dol-
lar/kg, depending on the quantity produced. To estimate the average cost of
production of the Country grape, as in the fine strains, yields are also impor-
tant in the case of small winemakers (who have, on average, two hectares
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184 G. M. Mora
planted with wine grapes in the Bío Bio and four hectares in the region of
Maule) having a large dispersion in unit production costs: for example, for
low yields of 4000 kg/ha, the declared average costs range between 0,13 and
0,30 dollars/kg.
8.2.2 Prices Paid to Producers
In general, a steady decline of prices paid to producers is evident, irrespective

of the grape variety and quality. This has been most pronounced in red variet-
ies, which on average between 2011 and 2015 show a reduction of 65%, with
the largest decline between 2014 and 2015. A similar situation occurs with
white varieties, although somewhat with smaller magnitudes. Between 2011
and 2015, the prices paid for Sauvignon Blanc, Chardonnay and Semillon
were reduced by 41%, with only a reduction in the last season which meant a
decrease of 32% of the amount paid per kg. For a glimpse of the margin that
could be presented in a vineyard, costs and prices of different varieties of wine
grapes are presented (Table 8.4).
Moreover, it should be noted that prices for the Country variety, grown
mainly in the upland of southern Chile, are historically recorded at least 50%
lower than costs.
8.2.3 Land Tenure: Family Versus Corporate Enterprises
In Chile, for many years the wine-producing companies were mostly of family
environment; the conversion of the Chilean industry entailed the develop-
Table 8.4 Costs and prices of wine grapes at producer level (dollars)
Costs and prices of wine grapes at
producer level Variety
Cabernet
Sauvignon Merlot Carmenere Country
Cost range(2012) 0.15–0.33 0.15–0.33 0.15–0.33 0.10–0.21
Average price, high quality (2012) 0.44 0.44 0.44 0.23
Average price, low quality (2012) 0.31 0.31 0.31 0.21
Average price, high quality (2015) 0.19 0.18 0.19 0.13
Average price, low quality (2015) 0.16 0.16 0.16 0.13
Source: ODEPA; Central Bank of Chile
Note: Exchange rate at 17 February 2016: 704.92 Chilean pesos per dollar
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ment of the Chilean export model (mid-1980s) and the appearance of other
legal properties. This is related to the foundations of the economic model
applied in Chile since 1974, which favored large wine companies (Gilbert
2014). In this business environment, one of the most important was, and
remains to be, Concha y Toro winemaking that was transformed from a fam-
ily business into a company of a corporation type, which means that the
traded value is known and therefore is subject to business performance. This
transformation involved a more professional way of operating the technical
and administrative management of the company. Today, Concha y Toro is one
of the largest companies in the world, and the wine business investments have
exceeded the borders with investments in Argentina and the USA, through
the Trivento and Fetzer Vineyards companies, respectively (www.conchay-
toro.com).
8.2.4 T
he Average Size Businesses and Wine Processors
Types of Wines Marketed
In general, according to Mora et al. (2014), the Chilean wine industry has a
significant concentration, as it shows about 50% of exports in value are attrib-
uted to almost ten companies, and only one of them is responsible for nearly
20% of Chilean wine exports value. This occurs in a context of an industry
where more than 400 wineries spread between the Coquimbo Region and Bío
Bío but with a high concentration in the Maule and O’Higgins Regions
involved. It is also important to note that out of the total Chilean production,
more than 75% of domestic is exported (Table 8.5).
Table 8.6 shows clearly that ten countries account for approximately 75%
of Chilean exports, with five of them exceeding $100 million exported. In
addition, it can be seen that there are countries from different continents,
highlighting lately Asian countries like China and Japan.
With regard to the grape varieties used in the production of wines, the fol-
lowing are presented. The most important wines are blends, followed by
monovarietal as Cabernet Sauvignon, Sauvignon Blanc, Chardonnay, Merlot
and Carmenere, among others. It is important to relieve some unit values,
such as wine with designation of origin, and some varieties such as Cabernet
Franc and Pinot noir and sparkling wine. The latter wines have been an inno-
vation in the field of exports, which have had a significant development in
recent years.
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186 G. M. Mora
Table 8.5 Chile: production of wines by type of wine and market (million liters)
Wine type and market 2013 2014
Domestic market (million liters)
Popular wines (bag in box and others) 95.9 96.0
Low-end wines 7.3 6.7
Reserve wines 18.0 18.8
Great reserve wines 10.1 11.3
Sparkling wines 3.5 4.2
Others 81.7 91.9
Total domestic market 216.5 228.9
Export market (million liters)
Bottled wines 435.8 451.8
0–20 dollars FOB/box 120.1 109.8
20–30 dollars FOB/box 169.4 186.4
30–40 dollars FOB/box 82.1 86.8
More than 40 dollars FOB/box 64.7 68.8
Others’ packaging 26.5 26.7
Bulk 411.9 317.3
Sparkling wine 3.5 4.1
“Wine” with fruit 1.3 1.4
Total export market 879.0 801.3
Total 1095.4 1030.2
Source: ODEPA Y SAG, 2015
8.2.5 T
ypes of Wineries: The Winegrowers’ Farm
Cooperatives and Industrial Enterprises
Chilean wineries generally are constituted as private companies, under differ-

ent legal figures, the larger ones being open corporations and smaller compa-
nies with limited liability. There are more than 400 wineries in Chile. There
are other types of legal constitution of the companies, but they are scarce,
such as cooperatives, of which there is a record of 17 cooperatives with only 2
valid and active.
• Cooperative Wine Loncomilla was created on 14 January 1959, and it was

formed by a group of visionary winemakers of San Javier and Villa Alegre.
It acquired its legal personality by the Supreme Decree No. 13 dated 10
December 1959.
• Viña Lomas de Cauquenes was founded on 23 December 1939, under the
name of Agricultural Cooperative Wine Cauquenes Ltda. (COVICA
Ltda.), following the earthquake that destroyed most of the winemaking
facilities owned by the winegrowers of the area. Today it is an important
reference not only of the local economy but also of the regional economy.
It currently has 240 members and a production of over 12 million liters of
wine.
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Table 8.6 Chile: exports of wines of denomination of origin in volume and FOB value
Volume (000 liters) Value (000 USD FOB)
January–November January–November
Countries 2014 2014 2015 Var. 2015/2014 (%) 2014 2014 2015 Var. 2015/2014 (%) (%)
United Kingdom 57,319 54,089 53,538 −1.0 177,486 168,122 152,840 −9.1 11.7
China 31,880 28,599 43,755 53.0 110,577 99,451 144,533 45.3 11.0
USA 38,183 34,976 37,103 6.1 148,892 136,237 143,747 5.5 11.0
Japan 42,168 38,749 46,666 20.4 124,703 115,019 135,612 17.9 10.3
Brazil 33,852 31,944 34,806 9.0 109,207 102,721 103,736 1.0 7.9
The Netherlands 30,225 28,451 26,556 −6.7 98,637 93,215 76,786 −17.6 5.9
Canada 12,942 12,080 13,163 9.0 65,713 61,300 58,961 −3.8 4.5
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Ireland 12,889 12,392 12,850 3.7 43,173 41,786 37,255 −10.8 2.8
Denmark 11,051 10,204 10,532 3.2 44,695 41,414 36,499 −11.9 2.8
Mexico 10,599 9953 12,135 21.9 32,438 30,385 33,888 11.5 2.6
Subtotal 281,108 261,437 291,104 11.3 955,521 889,650 923,857 3.8 70.4
Other countries 132,461 121,763 110,596 −9.2 466,728 427,551 387,972 −9.3 29.6
Total 413,569 383,200 401,700 4.8 1,422,249 1,317,201 1,311,829 −0.4 100.0
Source: ODEPA with information from the National Customs Service. Figures subject to review by further reports
The Chilean Wine Industry
187
188 G. M. Mora
• The Cooperative wine Curicó (ViñaRobles) was purchased by Concha y

Toro in 2008.
8.2.6 C
ontractual Arrangements Between Warehouses
and Distribution
There are generally arrangements or commitments and not proper contracts.

In this regard, there are agreements between wineries and restaurants to sell
their wines, and something similar happens between warehouses and super-
markets. Large wineries sell their products through distributors, which can be
divided between those who are responsible for the internal market or external
market. Some of the major wineries have offices in other countries, where sell-
ers are directly related to various retailers who contact customers, either in the
retail market (off-trade market) or hotels, pubs and restaurants (on-trade mar-
ket). Small wineries have vendors who contact directly with distributors or sell
directly to restaurants or other consumption locations.
In general, the most common of the great vineyards Incoterms (relative to
the price paid for export) is Free on Board (FOB). At this price the vineyard
exporters are responsible to leave the wine on the cargo ship; thereafter the
buyer is responsible for the costs and risks incurred to deliver the wines at the
port of destination. Finally, as suggested by Gilbert (2014), exporters need to
deepen their knowledge about new changes taking place in the distribution,
in which, in most countries, the power of retailers has been increasing.
Consequently, the Chilean industry needs to be more closely linked to the
retail channel (supermarket) and the consumer.
8.2.7 C
ontractual Arrangements Between Growers
and Winemakers
Historically it has not been a practice to formalize the sale of grapes from
growers to wineries. This situation has created problems between the actors in
the chain of wine, because it has created problems of information asymme-
try—misunderstanding in some cases between the parties taking advantage
some of the wineries to pay less and even some moments below the cost of
production. Currently, it has been regulated but not for intervention but
rather for business sustainability, as international demand is requiring better
quality and the wineries do not have enough grapes to cope with the demand
and are used to buy from third parties under the technical assistance of the
winery encouraging to produce grapes that allows making the required wine.
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According to Lima (2015), in the Chilean market, three types of contracting

grapes are considered by the winery:
1. Long-term recruitment. In this arrangement, the production of wine

undertaking by the winery establishes a fairly detailed contract with the
producer, where rather strict conditions are established for the manage-
ment of the plantation during the grapes growth, such as maximum yields
and handling requirements for the harvest. For such contracts usually a
high price is set per kilogram of grapes. These contracts are generally used
by producers whose land has exceptional conditions to produce good-
quality grapes that can be converted into wines of high quality. Currently
these contracts are used increasingly in the Chilean market.
2. Annual procurement. In this manner, intermediaries or wineries sign con-
tracts with a base and a maximum price. These contracts are generally
offered during the time between the grapes growing period and the har-
vest, and they are not renewed every year. This type of contract is currently
being used by some small and medium grapes producers, dedicated to
cultivate both traditional and fine varieties. According to what has been
observed, middlemen made this contract with small producers, and winer-
ies do the same with large producers. One of the frequent complaints of
such contracts is that they are not always respected by the producer if he
can get a better price for its produce.
3. Spot market. It is the market that exists throughout the harvest time. In
this market the producer sells to a broker or grape vineyard in kilo format,
regardless of probable alcohol levels or receiving an award for probable
alcohol degree. In some cases brokers offer an initial base price for the
grapes, which is subsequently adjusted upwards depending on whether the
kilo of grapes ended trading at a higher price with large vineyards, which is
not a common practice among all intermediaries. The price offered by
intermediaries on the spot market is the same for all grape growers who
want to sell, without additional quality considerations.
Then, with a focus on the value chain, activities and actors involved in the
chain are presented. In this regard, the logic of a traffic light (red, critical;
yellow, to be improved; and green, in good condition) can mean that small
companies are the ones with the largest shortcomings in general (yellow and
red) in both specific chain activities and the overall support. In general, large
wineries have few shortcomings to stay and grow in this competitive market
(Fig. 8.1).
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190 G. M. Mora
Support Activities
Human Resources: Medium and small companies Large wineries
Marketing: Medium and small companies Large wineries
Operations management efficiency: Medium and small companies Large wineries
Finances:Medium and small companies Great company Margin
Wine Packging Sales

Grapes Domestic
Production
prodution For Land Transport Market
market sales
Small Small Domestically Domestic
and Market Transport for
and Export
Great Packging Export sales
Great
Companies Companies For Export for export
Primary Activities
Fig. 8.1 Chile: value chain in the wine industry
8.3 B
usiness Strategies for Marketing, Labeling
and Communicating with Consumers
In the 1970s, buying wine in Chile was relatively simple, because it could be
found in a liquor store or supermarket, bottled in 750 ml or 1 liter (at that
time was the family wine) or larger format (5 liters of glass containers placed
in a wicker mesh, which have now evolved to the package pet). There was no
wine in boxes (bag in box), and the supply was very limited in terms of trade-
marks; there was no internet and promotion/advertising, which is why the
source of information was the shop and talk to the clerk, something simple.
Currently, the search for information is more complex, mainly due to the
diversity of products both on shops and on virtual platforms. Moreover, the
available supply has changed a lot, starting with the rapid development of
supermarkets and high participation of food retailing (Reardon and Berdegué
2002). They have become the main shopping plaza wines. Along these lines,
there are supermarkets oriented to sell differentiated products and others
selling generic products. There are also specialty shops, which aimed at high-
income segments of the market, where they offer a wide range of wines,
including imported wines, and they are located in areas with residents who
belong to a high socioeconomic status. With respect to the on-trade, the offer
is available mainly at restaurants and hotels, which charge prices between 30%
and 100% more than the off-trade channels (supermarket, specialty store,
liquor stores).
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In the past 30 years, the search systems of information have significantly

changed not only for wine but for most food products, affecting especially
younger consumers, who have a greater ability to master modern technology
to obtain information on product characteristics. In this regard, the penetra-
tion rate of internet as a promotional space for wine or as a distribution chan-
nel is still small but steadily increasing with the passage of time. The internet
is also widely used by wine consumers as a source of information. Other
sources of information include journals, assistance from a salesperson at the
shop and promotional events taking place at the end of the harvest and other
events held throughout the year. However, a major source of information is
the recommendations of friends and family.
8.3.1 Consumer Preferences
Undoubtedly, the scenario of purchase choice in the level of wine consumption

in Chile has become more complex. In the 1970s, the choice was linked to the
price, to the type (red or white) and to five existing commercial brands in the
market at that time. The grape variety declared on the label, wines with lower
alcohol content, the geographical area of production,
prizes, carbon footprint
and fair trade, among others, were not considered at that time. Today these
attributes frequently appear in wines that are over $10 a bottle. The above
reflects that the wine market in Chile has changed drastically. The price and
brand are the only two attributes that customers consider while choosing a cur-
rent or cheap wine, and even in these wines, the grape variety is declared on the
label. Today, the main retail agent, the supermarket has on its shelves predomi-
nantly Chilean wines but also has imported wines. In the same vein, the spe-
cialty stores in Chile have both domestic and imported sophisticated wines, but
in much greater diversity than supermarkets (Mora et al. 2013). When switch-
ing to bottled wine, attributes that the consumer considers in buying extend to
four or six, and the price, the brand, the strain, the type of wine (reserve or
varietal), the year of harvest and valley origin of the grapes are the attributes
considered specifically; price is one of the most relevant variables in analyzing
the marketing of wines, and results in many studies show a direct correlation
between price and quality (Gneezy and Gneezy 2011; Schnettler and Rivera
2003; Mora 2004). It is also considered an important element when choosing a
wine variable (Lockshin et al. 2006, 2009). This variable has also been analyzed
from the standpoint of the demand price elasticity. In Chile, the prices of wine
range between 80 and 100 dollars a bottle and have an inelastic price behavior,
while the generic wines have a more elastic behavior, similar to those reported
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192 G. M. Mora
by Panzone (2012). The trademark has been analyzed as a choice criterion

(Lockshin et al. 2006; Schnettler et al. 2012). In Chile, regarding the trademark,
there have been established differences between supermarket own brands and
trademarks, being this the last preference of consumers as they minimize the risk
of dissatisfaction. As for grape varieties and geographical locations, the prefer-
ences are Cabernet Sauvignon in red wines produced in the valleys of Maipo,
Colchagua and Maule (Mora et al. 2008). It is important to bear in mind that
the Maule Valley is the largest in Chile (it comprises 40% of the total area of
vineyards in Chile); however, it does not have the kind of national and interna-
tional recognition that the Colchagua Valley has had. However, recently this
valley has received some international awards and has developed a communica-
tion campaign, which have allowed it to position itself in the domestic and
international markets. Moreover, in recent times other attributes involved in the
decision buying process have begun to appear, such as alcohol, fair trade and
carbon footprints. In this regard, Mora et al. (2012) identified the highest level
of antioxidants (flavonols) for consumers’ preferences in all segments analyzed
of residents in Santiago de Chile tested. Some examples of “innovative” attri-
butes observed in the Chilean market are presented.
Chilean consumer loyalty of wine in the off-trade channel is only expressed
toward certain brands, such as wines with a strong position in the conve-
nience segments (with bottled priced at $3–10), for example, Santa Rita Three
Medals, Misiones de Rengo gray sticker, Santa Emiliana, Casillero del Diablo
from Concha y Toro, Black Cat San Pedro and Carmen Margaux vineyard,
where consumers reduce their risk by buying well-known brands which is
consistent with the results obtained by Schnettler et al. (2012). For many
other brands, there is no loyalty, also evidenced in part by the rejection of
traditional brands in favor of supermarket own brands. There are also wines
sold in bag-in-box packaging priced between $2 and 3 a liter. In this segment
of wine, there is a loyalty linked to a low price and quality standard.
From the perspective of demand, linked to the attitudes and percep-
tions, the Chilean domestic market in several market segments are dis-
played, as described in Chile by Schnettler and Rivera (2003), Mora et al.
(2010), Schnettler et al. (2012), Mora (2012a, b) and Mora et al. (2012).
There are also some of them similar to those described in other countries
like Spawton (1990) in Australia, Martínez-Carrasco (2002), Martínez-
Carrasco et al. (2006) and Mora et al. (2004a, b) in Spain, Hollebeek et al.
(2007) in New Zealand and Magistris et al. (2011) in the USA and Spain.
Let us review the ones that are evident in Chile: “aspirational” tend to con-
sume the same wines as those people who have a higher socioeconomic
level; “ethnocentric” prefer their local products; “skeptic” see wine as an
emblematic and different product but opt for healthy component of a
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wine; “modern millennium” review the available supply and pay attention
to package design and labeling; “involved” appreciate the wine and buy
larger quantities of wine; “basic or essential” buy ordinary wine, for low
price and higher-frequency purchase and consumption; and “traditional
baby boomers” are now more affluent, interested in the product, and look-
ing for differentiation when there are special occasions. However, even
when it was found, the existence of these segments in the Chilean market
segments “involved” and “basic or essential” are those that concentrate
more than 70% of this market, especially the latter.
Chilean wine consumers that belong to the millennium generation are simi-
lar to that described by Magistris et al. (2011) for the US millennium genera-
tion consumers, as people who are interested to try first and then buy and
consume. It can be achieved through tasting and evaluating the aroma and
flavor attributes, similar to that reported by Schmidt et al. (2013), who points
out that these are the most important when choosing wine attributes. In studies
conducted by Mora et al. (2008), Mora et al. (2010), Adasme et al. (2012) and
Mora et al. (2012b), it is a segment that is characterized by its skepticism about
wine, which could be associated with the millennium generation, according to
age, since the people described are relatively young. Currently the younger gen-
erations of Chilean wine consumers are more demanding in terms of informa-
tion. Consequently, people are increasingly buying reviewed wines from the
available supply, and if there is something that appeals to them, they buy it.
8.3.2 N
umber of Brands, Price Positioning and Volume
Segment
Lima (2015) makes an estimate of the domestic market share of the three larg-
est wineries in Chile (Concha y Toro, San Pedro and Santa Rita), considering
all their brands and subsidiaries, according to the sales reported (for both cur-
rent and premium wines) on their balance sheets and reports to the authori-
ties. It is estimated that these three vineyards accounted for 87% of the
domestic market in 2014 (85% in 2013) and sales focused mainly on bottling
and packaging formats. It should be noted that those three main vineyards
indicated virtually no wine in bulk format sold in the domestic and interna-
tional markets. Then, the information and prices listed are shown.
For Concha y Toro, one can say that it is a company facing all segments of
the market, since the icon wines, led by Carmín de Peumo satisfying the ultra-
premium segment on the top, are much above Tocornal boxed wines, Clos de
Pirque and Fressco Cooler, which are placed at the bottom segment of popu-
lar wines (Table 8.7).
mmorag@uchile.cl
194 G. M. Mora
Table 8.7 Concha y Toro Winery: segment, brand and price of their wines
Price in dollars
Segment Brand 2014
Ultra premium Carmín de Peumo 133.3
Gravas del Maipo 73.8
Don Melchor 110.7
Terrunyo 29.8
Amelia 29.8
Super premium Marqués de Casa Concha 16.3
Gran Reserva Serie Riberas 10.3
Premium Trío 7.4
Casillero del Diablo 5.9
Late Harvest 3.5
Sparkling Subercaseaux 5.2
Varietal Sunrise 3.1
Santa Emiliana 2.8
Bi-varietal Frontera 2.8
Popular Exportación 1.9
Exportación Selecto 2.1
Clos de Pirque 1.9
Tocornal 1.6
Fressco Cooler 1.6
Source: Central Bank of Chile
In contrast with Concha y Toro, Santa Rita vineyard produces wines in

box. The most basic level is the wine “Santa Rita Three Medals”, which is a
varietal bottling wine (Table 8.8).
8.3.3 C
ommercial and Business Strategies of Chilean
Wineries
According to a study undertaken by Lima (2015) for the Office of Agricultural

Studies and Policies of the Ministry of Agriculture of Chile, some guidelines
followed by the largest wine companies that supply the domestic market in
Chile are presented.
In the “Premium” segment, it competes with large- and medium-sized win-
eries, mainly with Santa Rita, San Pedro Tarapaca, Santa Carolina, Undurraga,
Errázuriz and Cousiño Macul wineries. It competes, albeit on a much smaller
scale, with smaller wineries whose production and sales of wine in the
“Premium” segment are focused mainly on exports. Sales in the “Popular”
segment focus on packaged wine carton format (bag in box), which in 2014
represented approximately 45% of total sales volume in this segment. In this
segment, Concha y Toro believes that foreign wineries find it very difficult to
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Table 8.8 Santa Rita Winery: segment, brand and price

Price in dollars
Winery Segment Brand 2014
Santa Icono Casa Real Santa Rita Reserva Especial 132.4
Rita Cabernet
Bougainville Petite Sirah Santa Rita 113.5
2010
Ultra Pehuén Carménere Santa Rita 56.8
premium Santa Rita Floresta Apalta Cabernet 43.8
Sauvignon
Santa Rita Floresta Cabernet Franc 43.8
Santa Rita Triple C 2010 37.1
Súper Casa Real Carmenere Santa Rita 16.7
premium Casa Real Cabernet Sauvignon Santa 16.7
Rita
Santa Rita Casa Real Cabernet 14.6
Sauvignon
Premium Medalla Real Gran Reserva Cabernet 13.4
Sauvignon
Secret Reserve Red Blend Santa Rita 8.6
Santa Rita Medalla Real Cabernet 7.9
Sauvignon
Varietal Vino 120 3 Medallas Santa Rita 3.2
Source: Central Bank of Chile
match the price-quality ratio that is offered by national wineries, especially in

the “People” segment.
It is considered that Concha y Toro in order to remain competitive in the
Chilean market has to keep their marketing in the “Popular” segment, which
could be extrapolated to the dairy cows cell of the Boston consulting group
matrix, that is, high share but low growth market.
Local market strategy. To increase the market share in the domestic market,
Concha y Toro has focused its efforts on its strongest brands in terms of vol-
ume and acceptance. So they have sought to reinforce their participation in
the “Popular” segment as well as an increasing presence in the “Premium”
segment portfolio with Casillero del Diablo.
Concha y Toro considers that the distribution in Chile is essential. To
increase growth in the domestic market, the company believes that it should
distribute its wines in many retail locations with alcohol license sale, includ-
ing bars, restaurants and wine shops, and also be leaders in the retail, espe-
cially given the growth experienced by sales of this channel in all territories.
Concha y Toro also indicates that it is constantly developing new formats
and updating the presentation of the products that make up its portfolio. The
methods of advertising and marketing strategies are different depending on
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196 G. M. Mora
the type of clients and their respective preferred product segment. During
2014, the company claims to have made great efforts in advertising their great
reserve brands, Clos de Pirque, Casillero del Diablo and Marques de Casa
Concha, through campaigns on radio, television and press, that is, wines that
are below $12 a bottle.
8.3.4 Business Strategy
The strategy states that Concha y Toro seeks to sustain attractive growth rates
and to achieve greater brand penetration and visibility in different markets.
Therefore, it has developed a wide range of products seeking to participate in
different market segments, offering good-quality wines at competitive prices.
They have focused mainly on the growth of the “Premium” segment, which
according to reports is attractive given its growth potential and prices, allow-
ing them to improve their sales mix and increase its average sales price.
Following this strategy, Concha y Toro has invested nearly $407 billion pesos
in the last ten years in land, vineyards, infrastructure and other businesses to
increase their own production. They also have constantly developed new
products, research into new varieties and incorporate new production valleys.
As for the commercial area, Concha y Toro notes that it has strengthened its
global distribution network with the help of new own regional offices in key
markets. At the same time, they indicate that in Argentina they have followed
the same business model they have used in Chile since the Trivento winery has
grown steadily in exports, taking advantage of the penetration of Argentine
wines in major markets. The budget for 2015 is around US $50 million,
which is planned to be allocated to support for future sales growth through
the planting of new vineyards and expansion of productive capacity. Concha
y Toro intends to continue planting new vineyards and the corresponding
developing new infrastructure necessary on Chilean and the US grounds.
• Vineyards owned by the company. In 2014, approximately 46.8% (35% in

2013) of wine production corresponded to “Premium”, “Varietal” and “Bi-
Varietal” categories. These wines are produced from grapes from their own
plantations or leases. However, the companies consider that their own
grape production provides greater ease for cost control and enables obtain-
ing raw material of better quality and reliability of their offer.
• Grapes from other vineyards. To satisfy its demand for production,
Concha y Toro buys grapes from about 828 independent producers in
Chile. The quantities purchased and the identity of those producers do
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not vary substantially from one year to the next, since the list of producers
remains the same for years. The criteria used to choose the producers are
the geographical location, the grape variety and the agricultural methods.
To guarantee quality, Concha y Toro offers technical assistance based on
criteria similar to those used at its own vineyards. The company also aims
to make purchases in small wineries that produce wine.
The winery San Pedro Tarapaca (VSPT) believes that it competes primarily
against Concha y Toro and Santa Rita, and their competitive strength is based
on a broad product portfolio, well-known brands and well-established distri-
bution networks. In 2014, Concha y Toro and Santa Rita had a market share
of approximately 27% and 31%, respectively. Along with these competitors,
San Pedro Tarapaca considers that it also competes with Santa Carolina and
medium wineries, such as Undurraga and Cousiño Macul, and small wine
producers that make up the informal market of wine in Chile.
8.4 Conclusions
Chile is a major player in the wine world trade occupying the fifth place on
worldwide exports with more than 1800 million dollars. There are more than
137,000 hectares of mainly French varieties, including Cabernet Sauvignon
and Sauvignon Blanc. There are over 400 wineries, but just 10% account for
more than 50% of total exports. The domestic market accounts for approxi-
mately 20% of the total selling, and the rest (80%) is gone to exports. The
main international markets are the UK, the USA, China, Japan and Brazil.
Exports of bottled wines with designation of origin and sparkling wines have
had successful economic performance over the last five years. The vineyard
area stretches from north to south along 900 km, and the areas of greatest
wine importance are in the regions of O’Higgins and Maule, both located in
the Central Valley.
Chile has achieved worldwide significant recognition. Every day the entire
industry searches ways to improve competitiveness and makes progress in the
development of the various components of the value chain. This requires fur-
ther research, development and innovation, which require support, commit-
ment and assessment of applied research by companies that are directly or
indirectly related to the wine industry and also from the State. The search for
a better value chain and production chains necessarily involves the generation
of an accurate multidimensional knowledge that responds effectively to the
solution of the problems of this industry making it increasingly competitive.
mmorag@uchile.cl
198 G. M. Mora
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Mora, M. 2004. Estudio de las actitudes y percepciones de los consumidores hacia los
vinos de las Denominaciones de Origen de la Comunidad Valenciana. Tesis
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Miguel Hernández de Elche, 270 p.
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———. 2012a. Los grandes aportes de la agronomía en los últimos 20 años. In: Un
siglo de compromisos con la innovación científica y tecnológica de la agricultura
1910–2010. Sociedad Agronómica de Chile, pp. 85–102.
———. 2012b. Conociendo al consumidor chileno de vinos para construir una rel-
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Mora, M., V. Padilla, and J. Espinoza. 2004a. Los países emergentes en el mercado
mundial vitivinícola: el vino chileno, situación actual perspectivas y estrategia.
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Mora, M., M. Brugarolas, L. Martínez-Carrasco, and J. A. Espinoza. 2004b. Actitudes
hacia los vinos de Denominación de Origen (D.O.) en la Comunidad Valenciana
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Interprofesional para el Desarrollo Agrario. pp. 119–123. Noviembre 2004.
Número Extraordinario. Zaragoza. España.
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mayor ingreso de la Región Metropolitana, Chile. II Congreso Regional de
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noviembre de 2008 en Montevideo, Uruguay.
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erdo a estilos de vida de consumidores de vino orgánico de la Región Metropolitana
de Chile. Revista IDESIA 28 (3): 25–34.
Mora, M., S. Boza, Y. Aravena, and B. Schnettler. 2012. You can add functional value
of an attribute on the label of a bottle of wine? 5th European Conference on
Sensory and Consumer Research, Bern, Switzerland, 9–12, September 2012.
Mora, M., C. Adasme, and R. Escobedo. 2013. The Chilean wine market: Comparing
wine sales at supermarkets and specialty wine shops. In: Wine case business case
studies thirteen cases from the real world of wine business management. The Wine
Appreciate Wild. Academy of Wine Business Research (AWBR), 97–108 p.
Mora, M., B. Schnettler, and G. Lobos. 2014. El gran crecimiento de la Industria
Vitivinícola Chilena. In: La economía del vinos en España y en el Mundo. Serie
Economía 23: 581–623.
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de vino en la IX Región de La Araucanía. Ciencia e InvestigaciónAgraria 30 (1):
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G. Lobos. 2012. Acceptance of national and store brands of wine by supermarket
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Websites
OFICINA DE ESTUDIOS Y POLÍTICAS AGRARIAS (ODEPA). Ministerio de

Agricultura de Chile: http://www.odepa.cl
PROGRAMA DE DESARROLLO A LAS EXPORTACIONES (PROCHILE).
Ministerio de Relaciones Exteriores de Chile: http://www.prochile.cl
Vinos de Chile.: http://www.vinasdechile.com/
WINES OF CHILE.: http://www.winesofchile.com
mmorag@uchile.cl
9
The South African Wine Industry
Nick Vink
9.1 Introduction
A number of aspects of the structure of the South African wine industry are
of interest to any speculation about the likely futures of the industry. These
include the structure of farm sizes, the relationship between what was tradi-
tionally called ‘the trade’ or producer wholesalers (brand owners) and the erst-
while cooperatives, the dominance of one firm in the market for branded
wine, and the competitiveness of the industry as a whole, that is, including
the upstream and downstream industries that service the sector. In this chap-
ter, the origin and consequences of these are explained, to give a clearer pic-
ture of the likely future trajectory of the industry.
9.2 Historical Background

The South African wine industry, which marked its 360th vintage in 2018,
has experienced only three long expansions throughout its history, and each
of these was driven by export markets (Vink et al. 2018a). The first of these
coincided with the establishment of the Dutch settlement in the Cape in
1652. This reliance on Europe and European geostrategic interests is summa-
rized by Katzen (1982: 185) as follows:
N. Vink (*)
Department of Agricultural Economics, Stellenbosch University,
Stellenbosch, South Africa
e-mail: nv@sun.ac.za

https://doi.org/10.1007/978-3-319-98633-3_9
mmorag@uchile.cl
202 N. Vink
The new Cape always remained a genuinely colonial society, which could not
achieve the autonomy and self-sufficiency of the San and Khoikhoi societies
which preceded it. The settlers provided both the impetus for its growth and the
measure of its dependence. The birth of the settler community was linked with
the economic value to Europe of the Cape’s resources, a harbour with fresh
water where fresh vegetables and meat could be produced for passing ships. The
existence of the ‘Tavern of the Seas’, the town of De Kaap [Cape Town] and its
hinterland of corn and wine farming in the south-western Cape, was always
dependent on its usefulness to Europe, expressed in the size of the Cape market
constituted by the garrison and the visiting ships.1
Europeans knew about the Cape since 1488 when the Portuguese seafarer
Bartholomew Diaz reached the Cape on his way to opening the Asian spice
trade. However, the Portuguese had little interest in a settlement there because
they (Katzen 1982: 187)2:
[C]rossed the Indian Ocean on the south-west monsoon on their voyages from
Lisbon to Goa or Cochin, usually stopping at Mozambique on the way out, St
Helena or the Azores on the way home.
In other words the Cape was too close to the origin of both outward and
homebound journeys.
The Dutch and the English traveled around the Cape at the same time and
with the same objective: to break the Portuguese monopoly of the spice trade
(Terreblanche 2014). They both aimed at the weak point of the Portuguese
monopoly, namely, South-East Asia rather than further north in China. The
Cape was conveniently almost halfway on this new route (Katzen 1982)—
thus the creation of the refreshment station on 6 April 1652 by the Dutch
East India Company (the VOC). However, the settlement soon proved too
expensive to run, so in 1657 the Company started to hand out land and cheap
loans to free burghers to encourage settlement, in the process disregarding the
land rights of the indigenous population (Terreblanche 2014).
Unfortunately, these free burghers also wanted to be free to take on slaves.
Williams (2016) explains that Jan van Riebeeck, the first Commander of the
settlement, took less than two months after his arrival to ask the company
1
The total settler and slave population of the Cape remained lower than 1000 people through to around
1720, while the average number of sailors and soldiers aboard ships in the Cape Town harbor numbered
more than 6000 per year, hence an export market (Boshoff and Fourie 2010).
2
Katzen quotes from Boxer (2001). This is a translation (originally published in 1959) of a Portuguese
publication by Bernardo Gomes de Bruto on famous Portuguese shipwreck stories.
mmorag@uchile.cl
The South African Wine Industry 203
authorities in Batavia (present-day Jakarta) for slaves ‘to do the dirtiest and
heaviest work in place of the Netherlanders’. As the production of wine con-
stituted the largest source of revenue to the VOC for much of the first cen-
tury, the wine farmers were politically influential. However, the VOC would
not allow the enslavement of the indigenous ‘free’ Khoi, as they wanted to
trade cattle with them. Slaves were, therefore, brought in, the first coming
from what is now Angola, but most thereafter from the east. Thus, in the
words of Williams (2016: 895) ‘The elementary social and political relations
of a slave economy and a slave society had been put in place –slaves and their
masters producing wine and wheat under the authority of a merchant
company’.
The second long expansion took place during the late 1700s and was also
dependent on the strategic location of the Cape. In this case, Britain’s compe-
tition with France for colonial possessions in Asia (specifically India) during
the time of the Napoleonic Wars resulted in a French attempt to occupy the
Cape. This was thwarted by Britain, which occupied the Cape in 1795 (and
again in 1803) in order to keep their link to India open (Van Jaarsveld 1975).
The resulting boost to the British economy spilled over to wine exports, which
were given preferential access to the British market through to 1860 (Vink
et al. 2018a).
The third long expansion in the South African wine industry coincided
with the political changes of the 1990s that marked the end of apartheid,
ushered in democracy, and resulted in growth in per capita income for the
first time in decades. These changes marked a complete break from the past
which, in the case of the wine industry, had been shaped by the Land Acts; by
the establishment of a cooperative, the KWV,3 in 1918 that eventually gained
statutory power over the industry; and by a concerted effort among a small
group of pioneering wine farmers to improve the quality of wine produced in
the late 1960s and early 1970s.
Apartheid was introduced into South Africa as formal government policy
after the National Party won the elections in 1948. With these elections, the
government inherited a land dispensation that rested on two important laws,
namely, the Natives Land Act of 1913 and the Native Trust and Land Act of
1936. These cemented the dispossession of land from black people that had
occurred since the first settlement (Delius and Beinart 2013). They had two
important implications for the industry, namely, that land ownership would
3
‘Ko-operatieweWynboukundigeunie van Suid-Afrika’ (later the ‘Ko-öperatieveWijnbouwersVereniging
van Zuid-Afrika, Beperkt’ KWV, or Cooperative Wine Farmers’ Association of South Africa, Limited).
mmorag@uchile.cl
204 N. Vink
be segregated (the 1913 Act stipulated that black people could only buy or
lease land from other black people, and vice versa) and that the land rights of
black people would be attenuated (e.g. their ‘ownership’ could not be used to
secure a mortgage and did not qualify as property rights for the purpose of
voting). Thus the Acts served as the basis for the suppression of black farming
in an attempt to ensure a steady supply of (cheap) labor to the mines and to
the farms of white South Africa (Greyling et al. 2018). At the same time,
white farmers were supported in a myriad of different ways, including legisla-
tion to support the establishment and growth of cooperatives in the form of
tax concessions as well as the principle of ‘forced cooperation’ as a means of
countering free riding.
The KWV was established in 1918 against the wishes of ‘the trade’ (today’s
producer wholesalers4) (Van Zyl 1993). The aim was to counter the weaker
bargaining power of grape growers (and their cooperatives where these
existed). Members had to sell through KWV, which would in turn declare a
surplus annually, which would be delivered free of charge and turned into
spirits for disposal at the discretion of the organization. The restriction was
that no produce could be sold on the domestic market at lower than the mini-
mum price. The income would be used to finance the purchase of distilleries,
vats, and buildings, and profits would be distributed to members on a pro rata
basis. Ironically, the trade agreed to distill and store the surplus on behalf of
KWV, and to purchase only from KWV. This was in exchange for an under-
taking from KWV not to compete in the market with their products and not
to deal directly with their clients. This agreement was eventually taken up in
legislation in 1924 and formed the basis of a symbiotic relationship between
the two parties until the 1990s.
However, the agreement proved to be ineffectual until KWV was granted
statutory powers in a process that started in 1924, mainly because grape grow-
ers sold directly to the trade at less than the minimum price when it suited
them (Van Zyl 1993). These statutory powers were expanded over time and
eventually included the ability to set a minimum or floor price, to limit pro-
duction by means of quotas, to force sales of all wine through the KWV, and
to declare an annual wine surplus that had to be delivered to KWV free of
charge. KWV also implemented production quotas in an attempt to gain
control over the surplus even before it was produced. In the process, KWV
4
The industry body that represents their interests is the South African Liquor Brand Owners Association
(SALBA), earlier known as the Cape Wine and Spirit Institute (CWSI).
mmorag@uchile.cl
also gained a de facto monopoly on exports, as no one else took an interest in

this market, especially after the advent of sanctions in the 1970s.
The main problem with the institutional arrangement was one of gover-
nance: the Board of Directors of KWV was elected by holders of quotas in the
respective wine-producing districts, but each quota holder had a vote regard-
less of the quota size. The result was dominance by small-scale producers,
most of whom produced wine grapes as an additional activity or held the
quota mainly to get access to KWV products at a discount price, that is, they
had an incentive to keep the minimum price as high as possible at the lowest
possible cost of production, regardless of the fact that this encouraged an even
greater surplus of inferior quality wine.
By 1990 the industry consisted of the KWV at the apex, with 70 coopera-
tive cellars (now producer cellars) established by the grape growers, and who
sold wine in bulk to KWV and to ‘producer wholesalers’, who established
brands that were sold into the retail sector (both on and off consumption).
There were also a small number (166) of private producers, some of whom
were registered as wine estates (private cellars in today’s nomenclature) who
grew grapes and made wine on their own property and sold directly into the
retail trade. This segment of the market was, however, largely unregulated and
unexploited until the early 1970s when three estate owners pioneered the
Stellenbosch Wine Route, just before the introduction of the Wine of Origin
system in 1972, which formalized the definition of the different wine regions,
and of the wine estates. This attempt to improve the quality of wine produced
in the country was however dependent on the domestic market because
increasingly effective boycotts and sanctions blocked access to export markets.
However, by then the rapid growth in the post-WWII economy had turned
into two decades of declining per capita income, starting in 1974. Growth in
the super-premium and premium segments of the (white) domestic market
was constrained, while the black middle class was still small (e.g. Southall
2004).
The end of the twentieth century therefore saw an industry that consisted
of large numbers of relatively small-scale grape producers, relatively small cel-
lars, only a handful of wine estates, and production that was dominated by
Chenin Blanc grapes, planted mostly for volume rather than quality produc-
tion. This was, in other words, the foundation upon which the post-apartheid
boom in exports was built and explains to a large degree the idiosyncratic
structural features of the modern industry. To this end, the next section pro-
vides an analytical description of the state of the industry in the early 1990s.
mmorag@uchile.cl
206 N. Vink
Some 45 000 workers on farms, plus 3 000 in cellars
90 000 tons of grapes produced by 6 000 grape growers and wine farmers. Members of producer
cooperatives produce 85% of the grape harvest
Wine must
Wine 48% Distilling wine: 52%
Producer Individual farmers

Producer Individual farmers
cooperatives: 94% Producer wholesalers
cooperatives Producer wholesalers
KWV
75% KWV
6%
25%
Buffer
stocks
Wine KWV
76%
Wine 48% Distilling wine: 52%

Producer Individual farmers Producer KWV
wholesalers Producer wholesalers 55%
86% cooperatives 45%
Marketing of wine
KWV
25%
Wine 48% Spirits: 52%

Producer Individual farmers Producer KWV Producing
wholesalers Producer wholesalers (including buffer, wholesalers
86% cooperatives 70% exports) 24%
KWV 30%
14%
Fig. 9.1 The flow of product in the South African industry, 1982
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9.3 The Industry at the Dawn of a New Era5

The institutional structure of the South African industry started to change
almost as soon as the political changes of the first half of the 1990s took hold.
The most important changes were to the role of the KWV, the structure of ‘the
trade’ and of the cooperatives and lastly to the functioning of the wine estates
and of the grape farms. The structure in 1982 is illustrated in Fig. 9.1.
Most of the grapes (85%) were delivered to the producer cooperatives,
which were responsible for turning most of the grapes into grape must. More
than half of the harvest (52%) was destined to be distilled, rather than turned
into wine. At this stage, however, the producer wholesalers took over, turning
86% of the must destined for wine into wine, and 45% of the must destined
to go to distilling into spirits. KWV was responsible for the rest of the distil-
late (55%). The producer wholesalers were responsible for marketing 86% of
the wine (i.e. for the share that they processed) and for 70% of the distilled
product, while KWV either ‘marketed’ 30% of the total as exports or kept as
buffer stocks.
The impact of these changes can be seen in the structure of the modern
industry. Therefore, the more recent history of each of these role-players is
described in this section, as a precursor to an analysis of the modern structure
of the industry.
9.3.1 The KWV
Under South African law, if a cooperative wanted to transform into a conven-

tional joint stock company, it had to apply to the Supreme Court for permis-
sion. When KWV applied for such permission to the Western Cape Division,
the Minister of Agriculture and Land Affairs, Derek Hanekom, approached
the Court with information that he, as a representative of the public, had an
interest in the matter and that it could not be allowed to go ahead until that
interest had been recognized. As a result, a Ministerial Committee of Inquiry6
was established in January 1997 and reported in February (RSA 1997). The
core issue addressed by the Committee was which assets, acquired by the
KWV to perform its statutory duties, belonged to the state or to various inter-
ested parties such as the producers. The report of the Committee recom-
5
Data in this section are from the annual publication of South African Wine Industry Information
and Systems (SAWIS) (http://www.sawis.co.za/info/annualpublication.php) unless otherwise specified.
6
The author of this chapter was an independent member of this Committee.
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208 N. Vink
mended deregulation of the industry, with remaining statutory powers (e.g.

levies to collect information and fund research, maintenance of quality stan-
dards) to be placed under the control of a body that represented the whole
industry. These recommendations were acceptable to the Minister.
At the same time KWV agreed to contribute R200 million7 over 10 years
and to provide services, valued at a further R227 million, for 5 years, to the
South Africa Wine Industry Trust (SAWIT) (Business Day, 10 September
1997), a new institution whose Board was appointed by the Minister. Today
these functions (information, generic promotion, research funding, transfor-
mation projects, etc.) are paid from statutory levies implemented under the
Marketing of Agricultural Products Act and executed by four ‘business units’
that serve the industry (Vink et al. 2004). KWV became just another pro-
ducer wholesaler in the industry. After changing hands a few times, the cur-
rent controlling shareholder is non-listed UK-based investment group Vasari.
The company has not done well compared to Distell, for example. In January
2005, Distell’s share price was R26.00, while KWV’s was R34.00 (Fin24
2005). By contrast, in 2016, at the time of the sale of KWV to Vasari, its share
price was estimated at around R20 (Crotty 2016), compared to Distell at
above R160 for most of October 2016.
9.3.2 The Producer Wholesalers
Numerically, the South African wine industry has always been dominated by
grape growers, with never more than 20% of them having their own cellars
on-farm to turn the grapes into wine. Their numbers ranged from some
6000 in the early 1980s to little more than 3000 today. Instead, most wine
was made by the producer wholesalers (so-called because they also produced
some grapes, but mostly bought in grapes, wine must, or wine, branded the
product, and sold it into the retail market). The largest of these in 1990 were
Stellenbosch Farmers Winery (SFW), Distillers Corporation, Gilbey’s, and
Douglas Green, all well-known purveyors of wine at that time. The current
structure of these entities is, however, a product of the ‘beer wars’ of the 1970s
(Mager 2008).
South African Breweries (SAB) was formed in the mid-1950s out of a num-
ber of smaller breweries. In 1960 it branched into the wine business by assum-
ing control of SFW as a means of safeguarding its interests as an ‘English’
At a time when the exchange rate was in the order of $1 = ZAR4.50 – R4.70, that is, around $40
7
million.
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company that had to keep on the right side of an Afrikaans government

(Mager 2008). Shortly thereafter, Anton Rupert, a leading Afrikaner business
figure, established the Oude Meester Group as a purveyor of fine wines and
brandies. In 1972, the beer wars started when Louis Luyt, a fertilizer baron,
established Luyt Lager and some other brands, together with Rupert, who
took a 25% shareholding. However, neither the business nor the partnership
flourished, so in 1975 Rupert bought out Luyt and established Intercontinental
Breweries (ICB). By that time, SAB (with 131 stores) and the Rembrandt
interests (with 180 stores) also had control over the retail market for liquor in
South Africa (which consisted of 372 liquor stores) (Mager 2008).
However, ICB was losing money and SAB disliked competition. As a result,
a deal was brokered between the two in 1979 (Mager 2008) and approved by
Cabinet (Vink et al. 2004). First, SAB bought ICB in its entirety. In exchange,
Rembrandt, SAB, and KWV formed Cape Wine and Distillers (CWD), the
result of the merger of the three major players in the wine and spirits sector,
SFW, Distillers, and Castle Wine. KWV purchased 30% of SFW and of
Distillers and, together with Rembrandt, acquired the majority joint interest
in CWD. The three principals each had a 30% shareholding, with SAB as a
silent partner. The net result was that SAB was back to having a near monop-
oly of the beer market, while CWD had 75% of the turnover of the wine and
spirits sector. Both eventually relinquished ownership over the retail sector, so
the vertical integration of the two industries ended.
In 1982 the Competition Board interceded in this blatantly anti-competitive
arrangement, condoning the beer monopoly, but declaring the rest of the
arrangement to be illegal. However, it took little more than a meeting of a
cabinet committee chaired by the Prime Minister (P.W. Botha), who had con-
sulted Rupert and KWV and the Minister for Industry, Dawie de Villiers, to
put an end to this interference. Subsequently, SFW and Distillers were again
separated in 1988 but were amalgamated in 2000 to form Distell, the largest
winemaker and liquor brand owner in the modern South African industry,
with a large portfolio of imported and locally produced spirits, and beverages
in the ready-to-drink (RTD) market, with ciders taking up the lion’s share of
these.
The unique position that Distell fills in the South African domestic market
is evident from the data in Table 9.1, which shows the degree of concentration
in domestic market share of the dominant companies globally. The upper
panel shows market share, and the lower panel the Herfindahl-Hirsch Index
(HHI), a measure of concentration—the lower the index, the more competi-
tive the market. An index of below 1500 is usually regarded as a sign of healthy
competition.
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210 N. Vink
Table 9.1 Concentration in the market: a ‘new world’ comparison, 2014 (%)
New South
Argentina Australia Chile Zealand Africa USA World
Market shares (%)
Largest winery 27 16 31 23 31 23 12
Second largest 14 9 30 11 3 15 8
winery
Third largest 12 9 29 10 2 13 6
winery
Fourth largest 7 7 1 9 1 6 3
winery
Combined 60 41 91 53 36 44 30
share
All others 40 59 9 47 64 56 70
Herfindahl-Hirsch Index (HHI)
Largest winery 252.81 729.00 930.25 547.56 930.25 524.41 151.29
Second largest 86.49 198.81 876.16 129.96 6.25 210.25 67.24
winery
Third largest 84.64 144.00 846.81 90.25 2.56 166.41 40.96
winery
Fourth largest 49.00 43.56 1.96 75.69 1.96 31.36 10.24
winery
Total 472.94 1115.37 2655.18 843.46 941.02 932.43 269.73
Source: Based on Anderson and Pinilla (2017)
In Chile (Concha y Toro) and South Africa (Distell), the largest enterprise
has a market share of above 30%, far higher than their next competitors, New
Zealand and the USA, with 23% each. However, large enterprises dominate
the Chilean market, with the combined market share of the four biggest
operators above 90%, which is in turn higher than any of the other countries,
as shown by the HHI which shows that Chile’s is the only uncompetitive
domestic market among these countries. The South African market is unusual
because, even though it has the lowest market share for the four largest enter-
prises at 36%, it has a higher HHI than all except Australia and Chile. Thus,
in South Africa, one firm dominates the domestic market, given that the
country imports less than 0.5% of domestic consumption.
9.3.3 The Producer Cellars
As mentioned, the current producer cellars started life as cooperatives, regis-

tered under a series of Acts of Parliament that protected this business form
and supported its activities through most of the twentieth century. In keeping
with the liberalization fashions of the past few decades, though, there are
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hardly any cooperatives left in South African agriculture and, where they have
survived in the wine industry, it is more for convenience that out of any con-
viction that it is a superior business form.
Most of the cooperatives established under this legislation were in the field
crop industries, that is, maize and wheat, and their main purpose was to sup-
ply inputs (including credit) to their farmer members. There were fewer coop-
eratives that took responsibility for processing farm products—these were
prevalent in livestock products (dairy) and notably in wine, where wine grape
farmers formed cooperatives to process the grapes into wine. There were 5
such cooperatives in 1915, 20 in 1945, and 69 by 1975, a number that
remained through to 2000, that is, during the period when they started to
change enterprise form from cooperatives to joint stock companies. These
cooperatives handled 89.9% of the wine grape harvest in 1976.
The process of conversion of cooperatives to joint stock companies should
be based on sound business principles: Sikuka (2010) summarizes the argu-
ments that have been used, including the value of equity, corporate acquisi-
tion, the cost of equity, and the efficiency of the governance structure. Cook
(1995) argues that cooperatives develop through different stages and come to
a point where they have to choose between exit, continuation, or transition.
However, as virtually all of South Africa’s agricultural cooperatives (including
the wine cooperatives) transformed at more or less the same time, it is clear
that the driving force was rather the fear that the new government was going
to relieve them of assets such as grain silos and cellar machinery that were
built up with support from the former regime.
In many cases, the wine cooperatives are still operating in the same way as
they did in the past, especially the operation of pool systems, whereby all wine
of a certain type is pooled regardless of origin, and farmers are then paid out
the average of the pool. This gives rise to familiar problems (Vink 2012), first
of which is ‘hiding in the pool’ or adverse selection. In a pool system, the
individual farmer has an incentive to deliver a product whose quality is below
the average quality of the pool (and hence costs less to produce), and this
works against all attempts to improve quality. Of course, the managers of a
pool have to contend with fixed technology: they are operating a processing
plant that may not be able to cater for small production runs, typically the
case with higher-quality produce. There is also the problem that managers are
tempted to overcompensate themselves when calculating the deductible cost
of administering the pool.
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212 N. Vink
9.3.4 The Private Cellars
The picture of a magnificent Cape Dutch homestead rising out of serried trel-
lised ranks of green vines defines the image of itself that the industry has long
propagated both domestically and overseas. The first of these wine farms was
Groot Constantia, founded in 1685 and the oldest wine-producing farm in
South Africa. These private cellars crush less than 25% of the total grape har-
vest in the country but capture an obviously larger proportion of the value of
wine sold and exported (a statistic that is unfortunately not readily available).
What we do know is that the off-consumption market is about 50–60% of
the total domestic market and that the domestic market for basic wine is 56
times larger than the domestic market for ultra-premium wines in volume
terms and 9 times larger in value terms. It is also three times larger in value
terms than the market for super-premium and ultra-premium wines put
together.
These wine farms were generally unregulated and without legal protection
until the Wine of Origin system was introduced in legislation in 1973 in
accordance with the Wine, Other Fermented Beverages and Spirits Act, 1957,
largely because of the need to comply with EU regulations. It is in a sense a
hybrid scheme, somewhere between the extremes of control found in
Burgundy and Bordeaux and the much more relaxed rules found in the USA
and Australia. It protects not only the geographic origin of a wine but also the
cultivar and vintage.
The smallest demarcation is a ‘single vineyard wine’, where the vineyard
may not exceed 6 hectares. This is followed by an estate wine, which has its
own production cellar on the farming unit where the wine is produced: when
this appellation is used, it means that the wine was produced from grapes
grown on that unit. The next level is a ward, which describes a small demar-
cated area which may or may not fall under a district, which is the better
known geographical description, and includes the well-known Stellenbosch
and Paarl. Different districts then constitute a region, such as Klein Karoo and
Coastal Region.
One of the more interesting changes over the past few decades since the
introduction of this scheme is that most of the ‘estates’ have deregistered from
this appellation (hence the more accurate ‘producer cellars’ because the con-
straint that grapes had to be produced on the farm itself meant that these
enterprises could not fully exploit the value of their brands). Producers such
as Beyerskloof and Kanonkop have made full use of this opportunity, using
their brand image as super-premium wine producers to bring in high-volume
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second labels that sell at a premium in the market. So, for example, in 1991
there were 77 estates and 59 ‘non-estates’ among the producer sellers, while by
the year 2000 there were 92 estates and 185 ‘non-estates’. Today there are no
more than a handful of estates left.
The producer cellars are even more geographically concentrated than the
industry itself. Stellenbosch (which until 2017 included the Cape Town win-
eries around Groot Constantia and Durbanville) had 16.36% of the country’s
vines and 16.02% of the vineyard area, but 44% of all the private cellars.
9.3.5 The Wine Grape Farms
Most of the wine grapes grown in South Africa are grown on farms that pro-
duce grapes and not wine (and most of these farms produce grapes as one of
a range of different enterprises, i.e. not many actually specialize in viticulture).
The number of these grape growers has been declining quite rapidly: from
more than 6000 registered growers in the 1970s to around 4600 in 1994 (and
fewer than 3200 in 2016). However, most of these are small-scale growers. In
1997, for example, half of them delivered or pressed fewer than 100 tons of
grapes, declining to 40% in 2016. At the same time grape producers were
investing less: the area under vines has declined from above 103,000 hectares
to some 95,000 currently. Furthermore, in a system where vines are kept on
average for 20 years, the annual replacement should be 4%, that is, 20% of
the national vineyard should be equal to or less than 4 years old. Instead, this
proportion was 12.9% in 1997 and only 7.3% currently.
The cultivar composition of the South African industry also tells of the
impact of the measures that KWV put in place to manage the surplus. The
three most prevalent grape cultivars in the industry were the high-bearing
Chenin Blanc, Palomino, and Colombar, represented 50% of the vineyard in
1975–1985, dropping to less than a third by 2005. By contrast, the plantings
of Sauvignon Blanc, Chardonnay, Cabernet Sauvignon, Shiraz, Merlot, and
Pinotage made up a derisory 5% of plantings in 1975 and were still less than
10% in 1990. Of course the Chenin Blanc planting of today is very different
from that of the earlier era, while the area under Palomino and Colombar is
now derisory.
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214 N. Vink
9.3.6 Farm Workers
The policy environment for commercial agriculture in South Africa changed

radically in the space of less than two decades, starting in the early 1980s with
the withdrawal of a range of direct subsidies,8 followed by accession to the
Marrakesh Agreement and membership of the World Trade Organization
(WTO) in early 1994, a few months later by a unilateral reduction in many
tariff lines for agriculture to below the WTO bound rates, and in 1997 by
deregulation of commodity markets when the Marketing Act of 1968 was
replaced with the Marketing of Agricultural Products Act of 1996. Yet while the
new government was deregulating commodity markets, it also started to inter-
vene in resource markets (water, energy, land, and labor) (Vink et al. 2018b).
Until 1994, farm workers had never been protected in law: in fact the
opposite, as a succession of ‘masters and servants’ Acts throughout the nine-
teenth century, in the aftermath of the abolition of the slave trade in 1808 and
of slavery itself in 1838, skewed the common law in favor of their employers
(Williams 2016). After the first democratic elections, the new government set
about revising all of South Africa’s labor laws, resulting in four major pieces of
legislation, which all included farm workers for the first time. These laws
included the Basic Conditions of Employment Act of 1997, in terms of which
a Sector Determination could be promulgated to define minimum working
conditions, including a minimum wage. This was introduced in agriculture in
2003. In 2013 the minimum wage was increased by more than 50% (Conradie
et al. 2018).
Conradie et al. (2018) model the wage elasticity among wine grape farm
workers, showing that even the 51% wage increase had a relatively small
impact on permanent farm workers, because the long-run wage elasticity was
only −0.58 to −0.70. Casual workers, many of them women, are not so for-
tunate, however, as in their case the long-run wage elasticity is −4.7, which
means devastating losses when the wage rises. This also jeopardizes the pros-
pects for viticultural practices such as canopy management and cover crops
which have been introduced to better regulate the impact of drought and heat
on the grapes (all symptoms of climate change). This makes it more difficult
to produce quality wines, which in turn jeopardizes the international com-
petitiveness of the industry.
However, the distinguishing feature of wine farm workers was the ‘dop’ or
‘tot’ system, whereby male workers were given wine regularly throughout the
Note that the process started a decade before the first democratic elections in 1994.
8
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day—in lieu of wages in the worst manifestation of the system or as partial

remuneration. Williams (2016) traces the various attempts to make the prac-
tice illegal—this was already accomplished in 1809 but had to be supple-
mented with legislation at regular intervals (e.g. in 1928 and 1963). He also
traces the origins back to the first settlement and the slave society that subse-
quently arose (Williams 2016). The results of this practice were predictable
and devastating (e.g. Marcus 1989; London 1999; May et al. 2005), and per-
sist to this day (e.g. Donald et al. 2017).
9.4 The Consequences

The origins of the particular structure of the South African wine industry have
been described in some detail in the preceding sections. In this section the
consequences will be investigated, with a focus on the efficiency of wine grape
producers, the fragmentation of the industry, the shifting geography, and the
competitiveness of the industry.
9.4.1 Efficiency of the Wine Grape Producers
Efficiency, based on technology and management, is central to international

competitiveness. In a recent article (Piesse et al. 2018) the efficiency levels of
wine grape farmers in the old established wine regions of South Africa
(Stellenbosch and Paarl) is compared to that of farmers in the newer regions
(the rest of the industry). Thus, the question whether experience plus first
choice of location matters more than the follower’s advantage of being able to
use newer technology is addressed.
The results show that land area is the most important input into the amount
of wine grape production, followed by labor and pesticides, while fertilizer,
machinery, and electricity make smaller contributions. For the old regions,
land area has a smaller impact on output than in the new (probably because
of the lower yields of the cultivar portfolio), while labor has a bigger impact
(probably because it is more skilled in the areas closer to the Cape Town met-
ropolitan region). Inefficiency levels were reduced by expenditure on labor
supervision in both regions, by a higher ratio of permanent to casual workers
(permanent workers need less supervision) and by modern trellising in the old
areas, but not in the new. More inorganic fertilizer increased inefficiency in
both regions, increased drip irrigation reduced inefficiency in the new regions
but not the old (in these areas irrigation infrastructure is intended for supple-
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216 N. Vink
mentary purposes, hence as insurance rather than to boost yields), while more
dryland had a negative effect in the new areas but not the old. A higher pro-
portion of red to white grapes reduced efficiency in the old regions but not the
new. And finally, more old vines as a share of the total, suggesting low levels
of replacement of the vine stock, only had a negative effect in the new regions.
There is, therefore, evidence that farmers in the new regions have tended to go
for higher yields at the expense of quality, whereas the old regions have tried
to maintain their reputation for quality, a strategy that was wrong, at least in
the short term.
There is also no real sign of an inverse farm size productivity relationship, a
point made two decades ago by Townsend et al. (1998). For example, while
the average vineyard increased by 55% between 1995 and 2015, the yield of
wine grapes increased by 100% despite the shift to lower-yielding varieties,
and the yield of wine increased by 75%.
9.4.2 Fragmentation of the Industry
South Africa is known for its highly sophisticated financial services sector. For
example, the country was ranked 53rd out of 63 countries in the World
Competitiveness Report of the World Economic Forum (2017), while the
financial services sector ranked 31st (Schwab 2017). However, this was not
always the case, and the wine industry more or less had to finance its own
growth out of the devastation wrought by phylloxera (1886), tariff-restricted
access to the market in Johannesburg in the period leading up to and during
the Boer War (1899–1902) and the Great Depression (Vink et al. 2018a).
We have shown that one of the main instruments around this capital con-
straint was the producer cooperatives (aided by government loans and legisla-
tion that supported the cooperatives). However, because the cooperatives
traded mostly in bulk wine, their main modus operandi was to manage a pool
system, largely because their priority was quantity rather than quality. This
became a self-fulfilling prophecy because the wineries themselves were built to
deal with rapid throughput rather than with small batch production. As a
result, the farmers’ grapes were aggregated into pools with a wide range of
qualities, and little differentiation in price, leaving individual producers with
the age-old temptation to ‘hide in the pool’, as was shown earlier. Thus the
solution to the problem of a lack of capital became the reason why farmers
could not build up sufficient capital to produce higher-quality grapes.
One of the consequences of the export boom that commenced after the
end of apartheid was the establishment of new grape production units in the
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industry, but this time with a difference: while the total number of producers
was declining rapidly (and mostly among the smaller producers, as has been
shown), the number of private cellars was increasing, and there was little sub-
stitution between these; in other words there has been no increase in the
numbers of grape growers in the industry. While this does not change much
in terms of fragmentation, it is interesting to speculate on its impact on those
representative institutions that have the grape growers as their base member-
ship, such as the industry body VinPro, and the relative influence of the pro-
ducer cellars in industry initiatives.
What is evident currently, though, is a lack of leadership in the industry
with regard to transformation, including land reform, even though a major
initiative was launched more than a decade ago with the establishment of the
South Africa Wine and Brandy Company (SAWB), an industry body whose
main task was to influence government policy on behalf of the industry and
in the process to support the work of the business units (SAWIS, Wines of
South Africa (WOSA), and the Wine Industry Network for Expertise and
Technology (Winetech)) with a focus on transformation of the industry. To
this end, SAWB designed the Wine Industry Plan (WIP). Furthermore, a
BEE program and scorecard were proposed, in accordance with the govern-
ment’s Broad-Based Black Economic Empowerment (B-BBEE program), but
these initiatives came to naught when SAWB, which had just been trans-
formed into the South African Wine Industry Council (SAWIC) was sum-
marily terminated in 2008.
9.4.3 The Geography of the South African Industry
One of the unique features of the South African wine industry is its geo-
graphic concentration around Cape Town and the Cape Peninsular, with
some 90% of the vineyards less than 200 km from downtown Cape Town.
From a wine tourism perspective, the industry is even more fortunate, as the
epicenter of good wine production is right on the city’s doorstep, with the
Durbanville Hills and Cape Town wards and the Stellenbosch and Paarl
District all within an hour’s drive. These four demarcations have a total of
almost 300 private cellars, that is, some 60% of the industry total. Furthermore,
while there are only about 50 old Cape Dutch farmhouses left, these are all in
close proximity to Cape Town.
The geography of the wine industry has been changing globally over the
past decades, arguably because of climate, a factor that has been prevalent in
the wine business for a long time (Storchmann 2011), and more specifically
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218 N. Vink
because of climate change (Ashenfelter and Storchmann 2016). The South

African industry, and specifically the Stellenbosch region, where the average
maximum daytime temperature in the summer increased by 1.7 °C between
1961 and 2008, is no exception (Bonnardot and Carey 2008).
The diversity in wine styles that has always characterized the South African
industry has come under threat from climate change—if the entire area is
becoming hotter, for example, it is more difficult to retain a diversity of styles
of wine (Vink et al. 2012). One way of dealing with this problem is to expand
production into cooler areas, which has in fact been happening. For example,
if one draws a line running east to west, and cutting through Vriesenhof farm
in the Paradyskloof area of Stellenbosch, then there were 12 private cellars
south of the line (i.e. toward the cooler coastal area) in 1991—now there are
31. Similarly, a north-south line that runs through Middelvlei farm gave 32
private cellars to the west of the line (also toward the coast) in 1991 and 72 in
2016. Other cool climate areas such as Elgin (24 private cellars), Durbanville
(25), Cape Peninsula (21), and Hermanus and the southern Cape (40) have
also shown the strongest growth in the number of private cellars. Diversity
can, of course, also be enhanced by changes in viticultural and oenological
practices and by changes in wine styles.
9.4.4 The Competitiveness of the Industry
Figure 9.2 shows the international competitiveness of the South African wine
industry since 1985, measured in terms of the revealed comparative advantage
South Africa
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
South Africa Poly. (South Africa)
Fig. 9.2 South Africa’s RCA in wine. (Source: Anderson and Pinilla 2018)
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(RCA), an indicator that compares the growth in net exports of a product

such as wine relative to a benchmark (in this case South Africa’s net exports of
all agricultural products) to that of global growth in wine exports relative to
all agricultural exports. A ratio greater than one denotes competitiveness.
The first phase (Esterhuizen and Van Rooyen 2006) that can be identified
from the data encompasses the era of regulation under the KWV and the
subsequent transition to democracy, accompanied by the opening of export
markets. However, competitive pressure from especially Australia and Chile
soon brought the industry back to reality, while the new plantings of (mostly
red) wine grapes had not yet come on stream.
The industry was able to weather these storms and posted an RCA of above
five from 2003 to 2009, on the back of a weaker domestic currency, larger
supplies of high-value grape cultivars, and rapidly growing exports into
Germany. During this time the South African brand was being established
with new initiatives such as the environmental (the Integrated Production of
Wine and Biodiversity and Wine Initiatives) and social focuses. However, this
era also came to an end, coinciding with the Great Recession that started in
the USA in 2008/2009. The South African economy has yet to recover, thus
exports are constrained by difficult trading conditions, and the domestic mar-
ket shows few signs of growth. Furthermore, the industry has not fared well
in terms of the prices that it can command on the global market: the average
unit price of South Africa’s wine exports is lower than that of any of its
competitors.
9.4.5 Summary
There are a number of other aspects of the industry that should properly also
be addressed in more detail, such as the lack of progress with land reform, the
position of farm workers, and technology development and adoption, but
space constraints preclude such discussion. In summary, then, the South
African wine industry grew from the 17th largest wine producer by volume in
1910 to the 8th largest today. However, this relatively rapid growth in output
was largely the result of growth in relatively low-quality high-yielding wine
grape varietals.
At the same time, domestic wine consumption has been stagnant for the
past five decades at a level of 8 to 10 liters per capita, excepting for a brief five
years (1971–1976) after the establishment of the Stellenbosch Wine Route
and the introduction of the Wine of Origin Scheme. The market for wine was
clearly limited by the small middle-class market, which at the time consisted
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220 N. Vink
mainly of white people. However, per capita consumption has remained at

these levels since 1990, an indication that the industry has failed to penetrate
the rising black middle-class market.
The RCA of South Africa’s wine exports was below one throughout most of
the twentieth century, moving above one in 1994, increasing until 2008, and
then remaining level. Thus, an industry with a low proportion of quality wine
production, unable to grow its own domestic market, and highly dependent
on the export market where it seems unable to improve the price points at
which wine is sold.
9.5 The Future

If these are the origins and their consequences, then what does the future hold
for the South African wine industry? While the future cannot be known, it is
possible to envisage at least some important pointers for the industry:
1. Prosperity in the industry has always depended on its export performance.

Given South Africa’s position in the world economy, this means that the
industry will, as now, be dependent on political stability to ensure exchange
rate stability and on government performance to enhance market access.
2. The number of grape growers will continue to decline along with the area
under vines until an equilibrium price can be reached where grape growing
becomes more profitable. This will also mean that there has to be greater
differentiation between wines of different quality, which in turn means
investment in wine making and storage facilities. Therefore, these are not
changes that will take place in the short term.
3. In this regard, however, the new phenomenon where brand owners from
among the private cellars, rather than the producer cellars, are buying an
increasing proportion of the high quality crop, will hasten this shift to
premium prices for premium grapes.
4. The global market for wine has shifted from place as the most important
descriptor (generally in the Old World countries, led by France) to culti-
var, under the influence of the new world producers, especially Australia
and the USA, and a new trend is now evident, namely, taste: people are
drinking cheaper, blended wines (e.g. Morss 2017). This augers well for
the South African industry, but only if the industry can convince the black
middle class to drink wine. How an industry as fragmented as ours will
succeed in this is, however, not clear.
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5. The South African industry has hardly transformed in the 24 years since
democracy, but the government has not sanctioned it for this lack of prog-
ress. The wine industry is no exception in this regard (nor is the agricul-
tural sector as a whole) but industry expectations of government support
must be tempered by realism about the ability of government to continu-
ally ignore this lack of progress.
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mmorag@uchile.cl
10
The Chinese Wine Industry
Linda Jiao and Shan Ouyang
10.1 Introduction
China is an emerging wine market experiencing rapid growth since the begin-
ning of the 2000s. This market is also a market in evolution, in every aspect,
from wine production to wine consumption. The cultivation of the vine in
China can be traced back to ancient times, when people described their enjoy-
ment of grape wine in poetry. Nowadays, China has come to be the world’s
second largest winegrower (by vineyard surface area), the sixth biggest wine
producer, and the fifth most important wine consumer in terms of volume
(OIV 2017). In addition, as we can observe from Fig. 10.1, the gap between
wine consumption and production, which is filled by imports, has been
expanding since the second half of the 2000s. Imported wine is a growing and
developing part of the Chinese wine market, due to the evolving consump-
tion behavior of Chinese wine drinkers. Regarding market size, according to
International Wine & Spirits Research (IWSR), China is predicted to become
the second largest wine market and the largest non-sparkling wine consumer
by 2020.
The wine-production sector is highly concentrated in China with leading
national wine groups providing a wide range of products which take over half
L. Jiao (*)
e-mail: linda.jiao@u-bordeaux.fr
S. Ouyang
Beijing Artix Investment Company Co., Ltd, Beijing, China

https://doi.org/10.1007/978-3-319-98633-3_10
mmorag@uchile.cl
226 L. Jiao and S. Ouyang
Wine consumption and production in China

20.00
18.00
16.00
14.00
12.00
1000hl
10.00
8.00
6.00
4.00
2.00
0.00
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Consumption Production
Fig. 10.1 Evolution of wine consumption and production in China. (Source: Cossllected
from OIV annual reports of World Vitiviniculture Situation and OIV Statistics, 2013–2017)
of the entire market. However, the small wineries in Ningxia have gained the
highest reputation among quality wine producers. In addition, the Chinese
domestic wine industry is characterized by a high vertical integration along
the value chain. Large groups and small wineries often have their own distri-
bution channels. In particular, e-commerce and social network marketing
have emerged over recent years, and the wine market is no exception to these
trends.
Last but not least, it is worth mentioning that the intervention of the
Chinese government is a key factor in the Chinese wine industry. The govern-
ment released the first national standards and policies to regulate the domestic
wine industry in the early 1990s and improved them during the 2000s. Then,
in the “12th Five-Year Plan” for the Chinese wine industry (2012), the
Ministry of Industry and Information Technology and the Ministry of
Agriculture underlined the importance of government support in the domes-
tic wine industry, especially in the development of the wine-production sec-
tor, the improvement of industrial structure, the innovation of science and
technology, the guarantee of product quality and safety, and the promotion of
domestic wine culture. Afterward, green development in the wine-production
sector was highlighted in the “13th Five-Year Plan”. Moreover, the govern-
ment promotes wine as a healthier alternative to traditional spirits and encour-
ages people to consume wine with moderation. During 2013–2014, the wine
market, especially the fine-wine market, suffered significantly as a result of the
crackdown on gifting and corruption, but it has been gradually recovering
since 2015.
mmorag@uchile.cl
The Chinese Wine Industry 227
In order to have a global overview of the Chinese wine industry, we will

introduce and analyze the main operators along the chain in this chapter.
10.2 W
inegrowing and Winemaking Sectors
in China
In China, the cultivation of the vine can be dated back to the fourth century
BC. Poems like The Song of Grapes and The Song of Liangzhou in the Tang
Dynasty recorded ancient people enjoying grape wine. Wine industrialization
in China started in the late nineteenth century when European missionaries
brought in vines and winemaking technologies. In 1892, Mr. Chang Bishi
(1841–1916), a patriotic overseas Chinese, set up the Changyu Pioneer Wine
Company. Four years later, Changyu imported quality grape vines in large
quantities from Europe to Yantai, Shandong Province, and that is how the
first wines in modern China were established. But the birth of Chinese wine
culture should be dated to the 1980, thanks to China’s reform, opening up to
the rest of the world and the investment of foreign groups. Influential Sino-
French joint ventures appeared during that time, such as the Remy Martin
Group, which created the Dynasty Fine Wine Group in 1980, and Pernod
Ricard, associated with the Beijing Winery, which created Dragon Seal in
1988. Later on, with the support and promotion of the Chinese government,
wine production in China has been increasing gradually since the 1980s.
According to the report by the International Organisation of Vine and Wine
(OIV) (2017), in China, the surface area under vine was 830,000 hectares in
2015 and forecasted to be 847,000 hectares in 2016, which accounts for about
1.5% of the entire national agricultural land. Most of the production is for
table grapes and wine grapes account only for 15% of the total grape produc-
tion. As regards wine production, the volume has been dropping slightly since
2012 from 13.5 to 11.4 million hectoliters, but China still remains in sixth
position in the world. In fact, there are wineries in western China selling their
bulk wine to be bottled in eastern China, and the production of wine is often
double counted—the first time in the west and for a second time in the east.
As a result, statistics on Chinese wine production are questionable.
10.2.1 Chinese Wine-Production Regions
Despite having huge geographical diversity, China has a rather unfavorable

and extreme climate for viticulture. The vines are cultivated in various regions
but under diverse climatic and soil conditions.
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A specific challenge for grapes is that, in winter, the climate in certain wine
regions is extremely cold and sometimes the temperature falls below −20 °C. To
protect the grapes from the wind and cold, vines have to be buried in winter in
order to keep them alive and then unburied in spring. Covering vines for the
winter is undertaken by hand, which implies extra costs. This is the major rea-
son why Chinese wine production has higher costs. Furthermore, vines gener-
ally need to be irrigated by river water or groundwater in most of the wine
regions. Besides, Chinese wineries like hiring French winemakers and oenolo-
gists as consultants, as well as investing in advanced and expensive equipment.
Wine regions are dispersed throughout the country, but most of them are
in eastern China. When it comes to wine regions, people usually talk about
their administrative divisions, although those are insufficient to define cer-
tain wine regions (Li, 2016). It helps to have a first location of Chinese win-
eries. Geographically speaking, eight main wine regions can be considered:
Shandong, Hebei-Beijing, Shanxi, Dongbei, Xinjiang, Ningxia, Gansu, and
Yunnan (Fig. 10.2).
Regional official data concerning winegrowing and winemaking sectors are
rarely available. In order to acquire more information, data on major wineries
for each region were collected. These data are from online resources and not
available for all considered wineries.
The eight main regions considered are:
10.2.1.1 Shandong
Shandong is the largest wine-production region in China, occupying the top

place for market share by both volume (about 35% of the total wine produc-
tion (author’s calculation based on the China Brewing Industry Yearbook))
and value. This region has a long winemaking history and relatively advanced
technologies. The vines here are mainly cultivated in the Shandong Peninsula,
and the most famous region is Yantai (a protected geographic indication)
where Changyu, the Great Wall, and Weilong are located. The climate in
winter is moderate, so that vines can naturally survive without being buried.
However, there are fewer sunshine hours in summer because of the rainy
weather. The wineries in this region are mainly of around 150 hectares.
10.2.1.2 Hebei: Beijing
Hebei is another important wine region in China in terms of both volume

(around 7% (author’s calculation based on the China Brewing Industry
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Fig. 10.2 Main wine regions in China. (Drawn by author)
Yearbook)) and value. The Hebei and Shandong regions represent nearly half
of the total domestic wine production. The Hebei wineries are located in
Shacheng (northwest of Beijing) and Changli (northeast of Beijing). The
wines produced from these two regions are protected as geographical indica-
tions. The winter here is rather cold which means vines need to be protected
artificially. The domestic grape variety Dragon Eye is widely planted in this
region. The planting size of the wineries here is mainly from 100 hectares to
over 500 hectares. There are also relatively smaller wineries such as Domaine
Franco-Chinois, a Sino-French joint venture, which has 23 hectares of vine-
yards and 25 hectares in total.
Several relatively smaller wineries, with 70–100 hectares in plantation, are
in the northwest and southwest of Beijing’s outer suburbs, such as Dragon
Seal and Changyu Aifeibao Winery. These wineries can be ideal for wine tour-
ism thanks to their geographical location.
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10.2.1.3 Shanxi
Winemaking is relatively small in Shanxi and its recognition in the wine

industry is mainly due to the success of the Grace Vineyard. Grace Vineyard
was the first family-owned winery in China, which was founded in 1997. It
has a total of 133.33 hectares, of which 60 hectares are planted with vines
with a production of 400,000 bottles per year.
10.2.1.4 Dongbei (the Northeast)
The Dongbei region consists of three provinces: Liaoning, Jilin, and

Heilongjiang. Their production accounts for over 20% of the total produc-
tion in volume (author’s calculation based on the China Brewing Industry
Yearbook). A domestic grape variety called Vitis amurensis is widely grown in
the Changbaishan region of Jilin Province. This grape is highly resistant to
extreme cold (Dongbei is the coldest region in winter in China), but its sugar
content is often inadequate when harvesting, meaning it requires chaptaliza-
tion. Besides, this region produces ice wine, and the most famous ice-wine
region is Huanren County in the Liaoning Province. The wineries here are
huge, from hundreds of hectares to thousands of hectares.
10.2.1.5 Xinjiang
Xinjiang is the largest grape-production region in China, and the cultivation

of wine grapes has increased rapidly since the 2000s. The large wine compa-
nies are used to buying fresh grapes or grape juice from the independent wine-
growers of this area. But also some wineries have been established here, have
commercialized their own wines, and gained good reputations. Furthermore,
Heshuo and Tulufan have officially become protected geographic indications
since 2016. The wineries in Xinjiang are also huge, most of them occupying
thousands of hectares in plantation.
10.2.1.6 Ningxia
Contrary to other provinces, “the wine industry occupies the most important
position in the economic development of Ningxia” according to Pr. Li Demei,
consultant of Ningxia Helan Qingxue Vineyard. Due to the Helan Mountain
East Foothill appellation, the provincial wine bureau, and the winery classifi-
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cation system, Ningxia has gained the reputation as the producer of the
highest-quality Chinese wines and is regarded as one of the country’s most
promising wine regions. The climate here is arid or semiarid with good condi-
tions of sunlight and warmth. There are also convenient irrigation conditions
thanks to the Yellow River. The vines have to be buried each winter to be
protected from the cold and wind. There are 72 wineries with 34,000 hectares
of vines for winemaking. More details about this region will be presented in
the following sections.
10.2.1.7 Gansu
Gansu has a relatively long history of winemaking, but the wine industry
hasn’t taken an important position in this region, probably due to the incon-
venience of transportation. The wine quality here has been barely satisfactory
because of unfavorable climate conditions. Over the last few years, the wine
industry has developed rapidly thanks to the support of the regional
government, especially as regards organic wine production. In addition, the
Hexi Corridor has become a protected geographic indication since 2012. The
size of the wineries ranges from hundreds to thousands of hectares.
10.2.1.8 Yunnan
There is not a long winemaking history in this region, although the climate is
relatively favorable for winegrowing. In a high-altitude but low-latitude geo-
graphical location, the sunlight is sufficient, the weather is not hot in summer
and in winter, like the Shandong region, vines do not have to be protected as
they can survive naturally. The vineyards are tiny, scattered all over the moun-
tains in small plots with normally dozens of plots making up just 1 hectare.
The difficulties and challenges of producing wine in Yunnan will be presented
by the Ao Yun case in the section on foreign investment.
10.2.2 Grape Varieties
There are hundreds of grape varieties in China if we take into consideration

both table and wine grapes. Red varieties dominate, representing 80% of
the total. Among the main red wine varieties, Cabernet Sauvignon accounts
for 80%, followed by Merlot representing 12.5%, Cabernet Gernischt
(Carmenère) 5%, Shiraz, Cabernet Franc, Pinot Noir, and other foreign vari-
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eties in small quantities plus Vitis amurensis, which is a domestic variety. For
white wine, Chardonnay accounts for over 61% of the total white-wine grape
area, followed by Riesling representing about 36%, plus Chenin Blanc,
Sauvignon Blanc, Gewurztraminer, Ugni Blanc, and so on. Dragon Eye is a
celebrated domestic white variety (the Chinese Agricultural Year Book;
Anderson and Aryal, 2013; Li, 2000).
The “12th Five-year Plan” indicates that strengthening winegrowing bases
is a key factor to ensuring the quality and stability of winemaking raw materi-
als. Local government should be in support of breeding high-quality imported-
wine grape varieties that adapt well to the climate of Chinese wine regions.
Marselan, a hybrid variety of Cabernet Sauvignon and Grenache, is bred by
INRA (French National Institute for Agricultural Research) and was first
imported to China in 2001. Unlike in France where Marselan is cultivated
little, this variety has spread across China during the last 15 years. Strongly
structured and elegant wines are made from Marselan, and the result is that it
is regarded as a grape variety which is highly adapted to the taste of Chinese
consumers. Several Chinese wineries (such as Zhongfei Winery, Yiyuan
Winery, and Huailai Amethyst Manor) present Marselan wines as their main
product.
10.2.3 Big Wine Groups Versus Elite Wineries
There are about 450 wine producers in China but only 150 companies
with a turnover of more than 5 million RMB registered in official statis-
tics. The wine-production sector is highly concentrated in China with 5
leading groups taking more than 60% of total volume. The main groups
are Yantai Changyu Group Co., Ltd.; Great Wall Wine Group Co., Ltd.
of COFCO Ltd.; Dynasty Fine Wine Group Co., Ltd.; Yantai Weilong
Grape Wine Co., Ltd.; and Dragon Seal Wines Co., Ltd. (Ubifrance
2012; IWSR 2015). According to the study by MarketLine, in 2015, in
terms of market volume of domestic wine, the top 4 account for almost
60% of total volume and the remaining 40% is shared by hundreds of
operators (see Fig. 10.3). However, since 2016, the degree of concentra-
tion has been diluted so that the top 4 account for less than half of the
total volume. But, Changyu still holds the first position in China and
takes around one fifth of the market.
Large companies provide a wide range of products from low-priced to
high-end ones in large volumes. As a result, they need grape sources and grape
juices from independent domestic growers or those worldwide. They buy
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Yantai Changyu Group Co.,

23.3%
Ltd.
Great Wall Wine Group Co.,
41.6% Ltd. (COFCO Ltd.)
Dynasty Fine Wine Group Co.
Ltd.
Yantai Weilong Grape Wine
18.1%
Co.
Other
7.5% 9.5%
Fig. 10.3 China wine market share by volume. (Source: MarketLine 2015)
grape juices from New World producers such as Chile, Australia, and also
from the Xinjiang Province. They mainly negotiate the price of grape juices
without strict quality criteria. Therefore, in some cases, grapes produced by
company-owned vineyards are often used for high-end products, while third-
party grapes are for low-priced products. Besides, there are local producers
who are used to importing bulk wine from Chile, Spain, or Australia and then
mixing them with their own “grape juice” to improve their qualities, because
their costs are lower than growing grapes themselves.
Wineries in the Ningxia region are the best representatives of elite Chinese
wineries. All wines are produced by grapes cultivated in their own vineyards
following certain requirements in quality in order to pinpoint their origin.
“The idea was to change the current situation of the wine industry in China,
which tended to ‘industrialize wine production’ and generate a ‘massive
amount of low-quality wines’ according to a special consultant of the region’s
wine industry.
Most of the large companies and “small and fine” wineries operate verti-
cally integrated businesses from growing grapes to making wine and then
bottling. But there are some exceptions, and the bottling of bulk wine is
described in the section entitled “Relationships along the chain”.
10.2.4 Appellation Versus Brand
In China, there are seven protected geographic indications of grape wines:

Changli, Shacheng, Helan Mountain East Foothill, Hexi Corridor, Yantai,
Heshuo, and Tulufan.
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The term “appellation” or “protected geographic indication” is rather new

for Chinese wines. Helan Mountain East Foothill in Ningxia Province is the
best-known appellation thanks to their gold medals in international wine
competitions and their promotion in influential wine media. It is also as a
result of the Ningxia government’s effort. Other appellations are less well-
known by consumers.
In 2011, Helan Mountain East Foothill became a protected geographic
indication in China. In 2012, Ningxia became the first Chinese provincial
wine region accepted as an official observer in the OIV. In the same year, the
first provincial-level wine bureau in China was founded here. In 2013, the
Ningxia government released the first local regulations designated for a wine
region—“Ningxia Helan Mountain East Foothill Wine Region Conservation
Regulations”. And following the Bordeaux 1855 Classification, the govern-
ment announced the introduction of a classification system to recognize and
encourage Ningxia wineries producing high-quality wines. This is a classifica-
tion system that divides the best wineries into five classes in accordance with
strict conditions such as grape variety, yield (about 57.7–92.3 hl/ha by red
wine), and wine quality. The classification system was officially implemented
in 2016. Also a regulation aimed to protect the geographic indication of
Helan Mountain East Foothill was released in the same year (Wu, 2016).
With the support of the local government and the cooperation of wineries,
regional wine- industry associations sprang up in wine regions (Wu, 2014).
There is no doubt that Ningxia is a pioneer and plays a guidance role for all
the associations. The legal system, such as the protected geographic indication
and the classification are frequently demanded by both wine producers and
the Chinese government. Chinese wine regions are approaching international
standards step by step.
As for the brands, Changyu has undoubtedly the highest market share, and
it is also the brand with most consumer awareness, followed by Great Wall,
Weilong, and Dynasty. From market share statistics, it is not hard to see that
consumers have stronger brand awareness than appellation awareness.
Two quite different wine producers—Changyu and Helan Qingxue
Vineyard—will now be described in order to have a better understanding of
the characteristics of the Chinese wine industry.
10.2.5 C
ase Study: Changyu Versus Helan Qingxue
Vineyard
Changyu is one of the oldest Chinese wineries. It has now been transformed
into a big group which offers a wide range of products from wine to spirits
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produced from six production regions in China and eight chateaux from their
properties in China and abroad. Their Pioneer International Chateau Alliance
with several chateaux from France, Italy, Spain, New Zealand, and Australia
produce their high-end wines with a very competitive image.
Changyu holds an important market share in almost every catalog in the
Chinese wine market, with a very large range of products from cheap wine to
high-end wine, cognac and brandy from their estates abroad, ice wine, and
health-care liquor. Changyu still holds a positive status and keeps expanding
its investment overseas in spite of the economic decline, the competition from
imported wines and the downturn of wine consuming caused by the anti-
corruption campaign from 2012.
By contrast, Helan Qingxue is not only at the opposite extreme to Changyu
because of the size of the company but also in the building of the image of
their products—100% Chinese ancestry. Founded in 2005, Helan Qingxue
Vineyard is the first demonstration vineyard in Ningxia. It has about 13.33
hectares of vineyard with an annual production of 50,000 bottles, situated in
Helan Mountain East Foothill. Its consultant, Li Demei, is a well-known
Chinese winemaker trained in Bordeaux, as well as a professor in Beijing
Agricultural College. This winery has built up its image and reputation gradu-
ally by the successful performance of their wines in several competitions.
Their wines have won many awards in international contexts such as the
Decanter World Wine Award and the “best Chinese wine” selected by the
Revue du Vin de France (RVF) China.
10.2.6 F oreign Wineries and Joint-Venture Wineries

in China
As mentioned before, Chinese wine industrialization was started by the

Sino-foreign joint-venture wine companies, and, up until now, foreign capi-
tal has continued to invest in wineries in China. Among these foreign invest-
ments, there are wineries established by large groups such as Pernod Ricard
which founded Helan Mountain Winery in Ningxia, the LVMH group
which planted 66 hectares of vines in Ningxia for the production of its
Chandon subsidiary in China, and the 25-hectare vineyard owned by
Domaines Barons de Rothschild (Lafite) in Penglai, Shandong Province. In
addition, there are also wineries established by wine enthusiasts like Dr. Karl
Heinz Hauptmann, a financial-industry expert, who founded Chateau Nine
Peaks in Shandong.
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10.2.6.1 Moët Hennessy’s Chinese Red Wine: Ao Yun
Ao Yun is the first luxury Chinese wine by Moët Hennessy produced in

Yunnan Province. The history of producing Ao Yun is a vivid example to illus-
trate the surprisingly high cost of wine production in certain Chinese regions
and also the challenges encountered by foreign investors. According to the
president of Moët Hennessy Estates & Wines, Jean-Guillaume Prats, produc-
ing Ao Yun combines “a great human challenge and a logistical nightmare”,
which results in extremely high costs, even more than those to make Chateau
Yquem (Schmitt, 2016). The logistics are very difficult since the vineyards are
situated in the foothills of the Himalayas at an average altitude of 2500 m.
Besides, when communicating with local farmers who speak only the local
language, French managers are facing problems related to culture and the
language barrier. Furthermore, electricity is not available on the farm, which
means every winemaking procedure has to be done by hand. 2013 is the first
vintage of this unique wine, with a small production of 24,000 bottles, priced
at USD300 internationally.
10.3 Wine Distribution in China

10.3.1 Segmentation by Color and Grape Variety
As we can see in Fig. 10.4, still red wine dominates the market, accounting for
71% of the total wine sales in volume, followed by still white wine represent-
ing 23% of the total, complemented with small percentages of still rosé, spar-
kling wine, and Champagne. With an increasing popularity of Champagne,
sparkling wines have gained some share but it is still limited. Among the grape
varieties for red wine, Cabernet Sauvignon occupies the first place with around
35% of the total sales in volume, followed by Merlot with about 23%,
Cabernet Franc 10%, Cabernet Sauvignon/Shiraz 10%, and others. For white
wine, the top 3 most popular varieties are Chardonnay with 43%, Riesling
26% and Dragon Eye 8%, and others account for 23% of the total (author’s
calculation based on Euromonitor International (2011, 2015)). Rosé wines
consumed in China are mainly made of Merlot.
10.3.2 Domestic Wine Versus Imported Wine
The majority of wine consumption is Chinese domestic wine that accounts

for 77% of the total consumption. Imported wines make up the remaining
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Still wine - 96.8%

fortified wine - 1.8%
Sparkling wine - 1.0%
Champagne - 0.4%
Still red wine – 73%
Still white wine – 24%
Still rosé wine – 3%
Fig. 10.4 Wine market share segmentation by color. (Source: MarketLine 2015 and
author’s calculation based on Euromonitor International 2011, 2015)
23% of consumption. With the evolving consumption behavior of Chinese

wine drinkers, imported wine is a growing and developing part of the Chinese
wine market with a high potential for the future. Among all the imported
wines, France (36%), Chile (22%), Spain (12%) and Australia (11%), Italy
(6%), and the USA (4%) are the top “countries of origin” (author’s calcula-
tion based on Euromonitor International (2011, 2015)). French wine domi-
nates the market but there is a significant growth of New World wines.
10.3.2.1 Export
Exports of Chinese wines are negligible and the main destination is Hong
Kong. As the wine industry is still very young in China, only a few wineries
sell their wines abroad. But with a good trend of development, it will not be
long until we see Chinese wine all around the world as it is already possible to
find Ningxia wines in California’s wine cellars.
10.3.3 Wine Distribution
On-trade and supermarkets/hypermarkets are the leading distribution chan-

nels in China. According to IWSR (2015), Walmart, RT-mart/Auchan,
Carrefour, Tesco (CRV), Metro, Parkson, and Lotus are the largest wine retail-
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ers in China (Fig. 10.5). Since 2016, on-trade has increased significantly in

China. Meanwhile, e-commerce has contributed a significant share
(MarketLine 2016, 2017).
10.3.4 Price Segmentation
Off-trade, the most common selling price range for all wines is 20–59.9 RMB
(3–10 USD) per bottle. Nearly 80% of red wines are sold within that price
range, and the same occurs for 71% of white wines, 78% of rosé wines, and
79% of sparkling wines (author’s calculation based on Euromonitor
International (2011, 2015)).
When it comes to imported wines, the average spending per bottle ranges
from 179 RMB for a casual drink to 260 RMB for a special occasion.
On-trade, average spending per bottle varies from 219 RMB for an informal
meal, to 296 RMB for a party or celebration, and up to 424 RMB for a busi-
ness meal (Wine Intelligence 2015).
The Chinese wine market is still in an hourglass structure (Fig. 10.6) with
a mid-range market smaller than the low-priced and high-end markets.
Domestic wine, along with low-priced imported wine, has gained the largest
market share and still has potential. The top-end fine wines have been experi-
encing a decline over the last two years (2013–2015). While the mid-range
market that includes mid-priced imported wines from a wide diversity of ori-
5.7%
3.9% 44.3%
14.9% Supermarkets/hypermarkets
Most sell price range: On-trade

CNY20-59.9 Specialist retailers
Convenience stores
Other
31.1%
Fig. 10.5 Wine distribution in China. (Source: MarketLine 2015 and author’s calcula-
tion based on Euromonitor International 2011, 2015)
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Fig. 10.6 Hourglass structure. (Drawn by author)
gins—Old World wines as well as New World wines—is growing and is

expected to continue that trend.

10.4.1 From Winegrowing to Winemaking in China
According to the Chinese economic system, the ownership of land in China

is public, which means that neither the winegrowers nor the wineries own the
land. So, there are two common models of production among the wineries in
China.
(a) Firstly, at the beginning of the development of the wine industry in

China, wineries used to buy the grapes from independent winegrowers
who rented land from the government to make their wines. They barely
had any control during the viticulture productive process. Sugar and acid
degrees after harvest are the only indicators to control grape quality.
Independent winegrowers are numerous and hard to regulate, and they
can also find alternative markets such as fruit-sugar production or switch-
ing to table grape varieties.
(b) During the past decades, the model of “wineries + independent wine-
growers” has shown a lot of disadvantages, such as unstable quality and
quantity of grape and unstable income for winegrowers. Recently, a grow-
ing number of pioneer wineries have tried to rent the land themselves and
train their hired winegrowers.
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Wineries choose either of these two explained models to cooperate with

winegrowers depending on their size and their business strategy. Big wineries
from more traditional wine regions, like Xinjiang, prefer to continue to buy
grapes from winegrowers to ferment large quantities of cheap wines. The first
model can’t reach grape quality expectations of wineries aiming at making
small production of high-quality wines.
The second model raises costs of production but it provides wineries with
more innovation flexibility to create their own wines. Some wineries are also
encouraged by government supports. In some regions, like in the Ningxia
Province with the government subsidy, the rent of land is 100 times less
expensive than in other regions.
Government supports have just extended to Xinjiang and Ningxia prov-
inces. In other regions, government supports are still at municipal or district
levels, like the Hengren County in Liaoning Province, Fangshan District in
Beijing, or Penglai District in Shandong Province. For instance, from 2006 to
2014, the Penglai government allocated incentives and subsidies to encourage
both the construction of wineries and the wine producers who own
vineyards.
At the beginning, government supports were applicable from the land rent
up to the distribution. But, since 2013, the distribution subsidy has dimin-
ished and market influence has begun to be more noticeable.
10.4.2 Market of Bulk and Bottled Wines
In China, wineries tend to be distributed geographically according to their

size. According to the interviews with scholars and professionals, small win-
eries are concentrated in the eastern part of China, and big ones are often
located in the western part.1 Big wineries, often belonging to large groups
and located in Xinjiang, send their bulk wines to other subsidiaries from
the same group for bottling and distribution. Except for those kinds of
wineries, most wineries in China are equipped with bottling and packaging
pipelines. So, they often bottle in their wineries and sell their wine in
bottles.
1
Generally speaking, the wineries in the eastern part of China are relatively small compared to the winer-
ies in the western regions such as Xinjiang and Gansu. Ningxia is a special case, though it is located in the
western part of China.
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10.4.3 Distribution of Chinese Wine
Viewed as a whole, Chinese wineries show a high degree of vertical integra-

tion. However, different wineries have different strategies to distribute and
promote their wines.
10.4.3.1 Traditional Distribution Channels
Although distribution channels are improving gradually, guanxi2 still plays a

significant role in wine sales, which means that establishing a close relation-
ship with distributors and with government, corporate, and private clients is
a key factor for commercial success in China. The Chinese domestic wine
industry is characterized by high vertical integration along the chain. Despite
a huge difference in business models between large groups and small wineries,
they often have their own distribution channels. Government and corporate
clients are important buyers of Chinese wine. They purchase wine in a large
volume for their staff or clients as a gift for national festivals such as the Mid-
Autumn Festival, the New Year, and the most famous Spring Festival. In addi-
tion, the staff is often interested in getting discounts.
10.4.3.2 E-commerce
With the emergence of e-commerce and social networks, digital marketing

has a very important role in the distribution of Chinese wine and is proving
successful. There are distributors like Yesmywine.com which only sell wines
on the Internet, and some multiple domestic importers/distributors use
e-commerce to sell their wines such as JD (Jing Dong), Tmall (Alibaba
Group), and GOME.
Chinese consumers can easily get lost in the middle of the wine shelves of
a wine cellar or supermarket because of the lack of professional sales guidance.
On the Internet, consumers can often get more information and also better
advice from reading comments of other consumers, which helps them make
their choices. In addition, delivery is fast and with very low prices. Buying
wine online is appealing for young generations and for those who are interested
2
Literally, guanxi means “go through the gate and get connections” or simply “relationships”. In the busi-
ness world, it is a Chinese term used to describe the network of relationships aimed to provide support
and cooperation or exchange favors among the parties involved.
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in bargains, although fake wine is a severe problem challenging consumers’

trust.
For instance, on 9 September 2016, Tmall host edits first Global Wine &
Spirits Festival online, bringing 100,000 wines and spirits from 50 countries
of origin (including Chinese wineries) to Chinese consumers. Meanwhile,
5000 bars and pubs will provide free tastings and distribution services offline.
It was a phenomenal event that showed the considerable influence of
e-commerce on wine distribution in China. Besides, the Alibaba Group has
expanded its activities to the Bordeaux region by acquiring wine estates and
establishing a negociant company. The group intends to corporate with for-
eign wineries and exporters to retail wine to Chinese consumers through its
Wine Direct platform.
Apart from the distributors, wine groups and large wineries also manage
their own online platforms. Their wines are available from official online
shops where consumers can acquire guaranteed authentic products. They pro-
mote their wine on social networks, in particular via Weibo (Chinese Twitter)
and the official account platform of WeChat (a powerful app combining all
kinds of existing social network apps, an essential of everyday life to make
business). Also, they provide VIP services such as buying wine en primeur,
enjoying exclusive member discounts, customizing products with special
packing or whole barrel orders, and so on.
10.4.3.3 Promotion
Chinese wineries increasingly make high-quality wines with prices as expen-

sive as imported wines. This brings some difficulty to consumers to choose
between a Chinese wine and an imported wine. Thus, Chinese wineries use
the same promotional methods as for imported wines. Master class and wine-
tasting activities are organized by wineries cooperating with media such as
RVF and Decanter. “Best Chinese wines” ranking competitions are also popu-
lar in building a good image to consumers.
10.4.4 Distribution of Imported Wine
There are not many barriers for foreign wine entering China. Unlike the
three-tiered system in the USA, there are no particular regulations in China
to prevent an importer distributing the wine on their own and even reaching
end-buyers. Guanxi is also important for distributing domestic wine as well as
imported wine.
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Fig. 10.7 Distribution chain of import wine in China. (Source: Wine Intelligence 2013).
Dashed line represents significant relationship but with little volume
The distribution chain is somewhat vertically integrated without clear spe-

cialization or division of roles among the operators. Importers also play the
distribution role or that of retailer, and so on. In addition, it is an advantage
to establish a closer relationship with their clientele, especially with end-
buyers, because retail stores with terminal clients are often the most
profitable.
As presented by Fig. 10.7, there are five types of players along the
imported-wine distribution chain: foreign suppliers, importers, distribu-
tors, interfaces, and final consumers. Foreign suppliers are foreign wine pro-
ducers, merchants, or Chinese imported-wine brokers. They provide wine
to first-line importers/distributors or to the gray market in Hong Kong or
Macao.3 Then, wine can be distributed from first-line importers to second-
line importers/distributors, then to retailers, and so on. Another possibility
is that importers distribute wine directly to retailers, restaurants, hotels,
bars as well as to private or corporate buyers. Finally, wine reaches consum-
ers. However, part of the wine in the gray market can flow directly to final
consumers.
Smugglers use the gray markets in Hong Kong or Macao to transfer imported wines into mainland
3
China to evade import duties.
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10.4.4.1 First-Line Importers/Distributors
As mentioned before, the border between importing and distributing activi-

ties is not clear. First-line importers/distributors import more than distribute.
Their wine provisions are from foreign wine producers directly, or foreign
wine merchants, or Chinese brokers of foreign wine.
We can consider five types of first-line importers/distributers: the historical
national, the specialist, the super-regional, the regional, and the wheeler-
dealer (Wine Intelligence 2013). The historical nationals are the small num-
ber of large groups like ASC, Summergate, C&D, Torres, and COFCO, with
public or foreign capital, providing a wide range of products and implanted
in major wine-consumption regions of China. The specialists are small and
medium-sized organizations specialized in certain types or certain wine ori-
gins, most of them implanted in cities like Shanghai and Shenzhen. The
super-regionals, successfully implanted in their regions, and the regionals are
mostly in second- and third-tier cities of their region. The wheeler-dealers are
opportunists looking for short-term profits, found at every level along the
chain and in every region.
10.4.4.2 Second-Line Importers/Distributors
Second-line importer/distributors are essentially dedicated to the wholesale

business. They are mostly private companies of different sizes, specializing in
one region or one city and often successfully implanted in the second- and
third-tier cities of their region. Their main supplies are from first-line import-
ers/distributors, and many of them have also developed a direct import activ-
ity, but distribution remains as their main activity.
10.5 Conclusion
• China is an emerging wine market and has a young domestic wine indus-
try. The market is characterized by its dynamism. The industry structure,
especially the channels of distribution, has been evolving rapidly to adapt
to changes in consumer behavior.
• The domestic wine industry is characterized by high vertical integra-
tion along the chain from winegrowing to winemaking and finally to
distribution.
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• Leading groups provide a wide range of products from low- to high-end

prices and occupy about half of the total market of domestic wine. The
degree of concentration has been experiencing a decreasing trend over the
last two years. The large groups buy wine grapes from independent domes-
tic winegrowers or import grape juice or bulk wine from the New World to
obtain high volumes. Grapes produced by company-owned vineyards are
used for high-end products.
• Independent winegrowers are numerous. They rent land from the govern-
ment to grow vines and barely have control during the viticulture process.
The quality of their grapes and grape juice cannot be guaranteed.
• Small wineries in Ningxia have a different business model to the large
groups. Following the Bordeaux path, they have relatively strict regulations
in terms of winegrowing and winemaking. All wines are produced from
their own vineyards with high quality, and have gained an international
reputation.
• There is a high cost in winegrowing because of extreme climates. In certain
regions, vines have to be buried each winter in order to protect them from
the cold and wind.
• The Chinese government has been playing a significant role in the develop-
ment of the wine industry: government subsidies for winegrowing and
winemaking sectors and also promoting wine as a healthier alternative to
Baijiu (a strong Chinese distilled alcoholic beverage made from grains).
• Red wine undoubtedly dominates the market, followed by white wine.
Rosé wine is scarcely consumed in China. Sparkling wine has started to
gain in popularity, but it still has a long way to go.
• In China, guanxi (the network of relationships) is still a key factor of suc-
cess in the wine business. Government and corporate manage a great num-
ber of clients but with high seasonality. The Chinese traditional festivals are
the best occasions to make turnover.
• Domestic wineries, be they big groups or small wineries, often have their
own channels to distribute wine. Online platforms are an effective way to
promote their wines. E-commerce has been successfully operated in China
by distributors as well as wineries themselves.
• Chinese consumers have become more open-minded and adventurous vis-
à-vis novel products. Imported wine is growing and developing in China,
thanks to the evolving behavior of Chinese wine consumers. Mid-price-
ranged imported wines from the Old World as well as the New World have
great potential on the Chinese market.
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• There are not many entry barriers for imported wines. The border of the
activities between importers and distributors is not clear. There is evidence
of a vertical-integration trend along the imported-wine distribution chain.
• The export of domestic wine is negligible, although there is room for opti-
mism because the quality of wine is improving.
References
Anderson, K., and N.R. Aryal. 2013. Which winegrape varieties are grown where? A
global empirical picture. Adelaide: University of Adelaide Press.
Li, S.H. 2000. Grape production in China. FAO Corporate Document Repository.
Available at: http://www.fao.org/docrep/003/x6897e/x6897e05.htm#TopOfPage.
Li, D. 2016. Defining the Chinese wine regions. Decanter China. Available at: https://
www.decanterchina.com/en/columns/demeis-view-wine-communication-from-a-
chinese-winemaker/defining-the-chinese-wine-regions.
Schmitt, P. 2016. Moët’s Chinese wine ‘a logistical nightmare’. The Drink Business.
Available at: https://www.thedrinksbusiness.com/2016/06/moets-chinese-wine-a-
logistical-nightmare/.
Wu, S. 2014. Ningxia wine region: We’ve got your back, says the government.
Decanter China. Available at: https://www.decanterchina.com/en/knowledge/
people/region-authorities/ningxia-wine-region-we-ve-got-your-back-says-the-
government.
Wu, S. 2016. Ningxia announces wine classification system. Decanter China. Available
at: https://www.decanterchina.com/en/news/ningxia-announces-wine-classifica-
tion-system.
Audit de la distribution du vin en Chine. 2013. Wine Intelligence.
China Brewing Industry Yearbook. 2008–2011. China Alcoholic Drinks Association.
Le marché des vins et spiritueux en Chine Continentale. 2012. Ubifrance.
Portraits China. 2015. Wine Intelligence.
The IWSR/Vinexpo Report – The Wine World 2009–2019. 2015. International
Wine and Spirit Research.
Wine in China. 2011, 2015. Euromonitor International.
Wine in China. 2015–2017. MarketLine.
World Vitiviniculture Situation. 2013–2017. International Organisation of Vine and
Wine (OIV).
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and Information Technology and Ministry of Agriculture.
mmorag@uchile.cl
Part II
Regulations in the Wine Sector
Coord. by Paola Corsinovi, Davide Gaeta
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11
Introduction: Regulations in the
Wine Sector
The European Union is the first wine-producing area with around 65% of
world production; however, over the years the Europe’s share of the world’s
vineyards has declined from 63% in 2000 to 54% in 2014 as the effect of EU
policy as the permanent abandonment premiums ended in 2011 (OIV 2015).
In the meantime, the share of all other world wine regions is increasing, in
particular in Asia, which now accounts for 25% of the world’s vineyards, and
the international trade had a growth: which reached 20 million hl in volume
in 2015; only 20 years before, in 1995, the export was about 11 million hl.
Nowadays, wine has become one of the most globalized products in the world.
A variety of factors have contributed to the process of globalization.
Nevertheless, on the demand and consumers’ side, social and religious cul-
ture, diet issues and alcohol policies have contributed to major changes in the
geography of consumption with a reduction in the traditional EU wine coun-
tries versus outside the EU.
The EU domestic context and international scenes have (probably) played
an important role in the design of wine strategies and interventions, since
their inception in 1962. Wine policy is one of the most articulate laws of the
Common Agricultural Policy (CAP) and the single Common Market
Organization (CMO), and this is due to the complexity and heterogeneity of
P. Corsinovi (*)
Centre of Economics, Hochschule Geisenheim University, Geisenheim, Germany
D. Gaeta
Department of Business Administration, University of Verona, Verona, Italy
e-mail: davide.gaeta@univr.it

https://doi.org/10.1007/978-3-319-98633-3_11
mmorag@uchile.cl
250 P. Corsinovi and D. Gaeta
the decision-making system, policy-makers, institutions and organizations

involved in the process. The wine policy has gradually been established under
the CAP; however, agricultural policy and both the EU domestic context and
the international scenario have played an important role in designing the
strategies of wine interventions. The new CAP and CMO’s agreements
2014–2020 reached in 2013 are the results of three years of bargaining and
intensive negotiation by the European member states that have different
interests and level of economic support to reach.
The CAP is still the most integrated of all EU policies and accounts for the
largest share of the EU budget and recognizes that its share of the budget has
steadily decreased from about 75% of the total EU budget in 1985 to 38% by
2013. Recently, debates on CAP and the CMO have seen new decision-
makers involved. The EU Parliament was involved under the co-decision pro-
cedure to the last CAP and CMO (including the wine sector) reforms for the
period 2014–2020. After 46 years of implementation, the CAP and its CMOs
are one of the most integrated EU policies and account for the largest share of
the EU budget (38% by 2013).
The objective of this part is to investigate the multiple aspects of wine regu-
lation and the actors (organizations) involved.
In details, this second part of the book is structured into three chapters
(Chaps. 12, 13 and 14): Chap. 12 entitled “International Wine Organizations
and Plurilateral Agreements: Harmonization versus Mutual Recognition of
Standards” by Compés; Chap. 13, by Corsinovi and Gaeta, focuses on “The
European Wine Policies: Regulations and Strategies”; and Chap. 14 by
Mariani and Pomarici on “Barriers to Wine Trade”.
Chapter 12 analyzes the international wine organizations and plurilateral
agreements and the dialectic between harmonization and mutual recognition
of standards. This part focuses on the role of the international organizations
such as the International Organisation of Vine and Wine (OIV) and the World
Wine Trade Group (WWTG). The first tries to promote harmonization and
the second the mutual acceptance and recognition of standards. There are no
formal relations between WWTG and OIV, although many WWTG mem-
bers participate in the OIV. They don’t compete, but their philosophies are
very different. Through detailed analysis, this section highlights the different
philosophies and goals of action. WWTG is smaller and more nimble because
of the fewer members. It also has a direct link between industry practitioners
and government, which is weaker in the OIV (principally government and
researchers). The WWTG exists to facilitate trade and because of the unique
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Introduction: Regulations in the Wine Sector 251
partnership between industry and government can develop international

trading agreements to facilitate trade. It also provides a strong link to the Asia-
Pacific region due to well-developed relationships, which are lacking in the
OIV. This one, despite its international nature, has a European focus, and its
main activity is the establishment of standards and the development and
approval of new practices. Perhaps a formal relationship with the European
Commission could cause tensions with non-EU member states, pushing it
toward the “Old World” and letting the WWTG as the “New World” institu-
tion (Raul Compés López, Chap. 12).
Chapter 13, on the “European Wine Policies: Regulations and Strategies”
by Corsinovi and Gaeta, is organized into three parts. The first one describes
the historical evolution of European wine policies and highlights the main
drivers and outcome that have dominated the European Commission’s aims
since the first CMO in 1962, until the last reform in 2013. This section fol-
lows the evolution of the wine policies through three main phases: the first
phase (Phase 1), referred to as “price and income support”, has followed the
objective of market equilibrium by reducing surplus wine quantities and
guaranteeing the income stability of producers (such as distillations or aid for
storage or buying alcohol). The second phase (Phase 2) could be identified as
the “quality phase”. It saw the introduction of a set of instruments to control
production with the aim of adapting supply to market demand, improving
production potential and management, and restructuring production poten-
tial in terms of quality and quantity (such as the aids for grubbing up and
permanent abandonment, restructuring, green harvesting and harvest insur-
ances). The third phase (Phase 3), starting mainly with the 2008 reform,
marks officially the new policy orientation focusing on the “competitiveness”
of quality wines. The second part of Chap. 13 analyzes the budget expendi-
ture that has characterized the public interventions (and its three phases
described) in 45 years (1970–2015). In the third part of the chapter, authors
focus their analysis on the protection model for EU quality wines, based on a
pyramid-structured project that is becoming more restrictive as they gradually
move up the pyramid from the base to the peak, and its recognition at the
international level and role of the international organization like World Trade
Organization (WTO). The second section highlights the controversial aspects
of the EU wine policy from financial expenditures to the requests of recogni-
tion and protection of quality wines in the international scenarios.
The dynamic growth of the wine traded and the increase of international
trade have been driven by a number of external and internal factors including
trade barriers. The understanding of which and how trade barriers operate in
the wine markets is explained by the contribution of Chap. 14 on “Barriers to
mmorag@uchile.cl
Wine Trade” by Mariani and Pomarici that helps to interpret how the wine
market evolved over time and to foresee how could it evolve in the future.
Chapter 14 offers an updated analysis of tariff barriers and non-tariff measures
and the free trade agreement relevant to wine trade. This chapter is organized
as follows: in paragraph 2 the tariff barriers operating in the wine market are
discussed, and an assessment of the impact of such barriers on the wine export
flows is introduced; in paragraph 3 a general overview of non-tariff measures
is offered, showing how these operate as barriers in the wine sector; in para-
graph 4 an analysis is done of technical measures, which are the non-tariff
measures more frequently resulting in trade barriers; in paragraph 5 it is
shown how exporting and importing countries reduce the wine trade’s barri-
ers; and in paragraph 6, the events and processes which could modify trade
barrier status in the wine market over the near future are presented. Some
final remarks, in paragraph 7, conclude the chapter.
Reference
OIV. 2015. World vitiviniculture situation. Available at http://www.oiv.int/public/
medias/2777/report-mainzcongress-2015-oiv-en-7.pdf
mmorag@uchile.cl
12
International Wine Organizations
and Plurilateral Agreements:
Harmonization Versus Mutual Recognition
of Standards
Raúl Compés López
12.1 Introduction
Until the late 1980s, the European Union (EU) was the only real-world player
in the global wine market because the new wine world was still in its infancy.
The EU’s wine policy was, and continues to be, different from the Common
Agricultural Policy’s rules and was largely influenced by the traditional phi-
losophy of French regulation. At the time, the EU’s policy was autonomous
and independent of external influences. The only external institution of refer-
ence was the International Organisation of Vine and Wine (OIV), but its
influence was very restricted in both technical and oenological standards.
Things started to change during the mid-1990s in several ways. First, the
creation of the World Trade Organization (WTO) and the arrival of the cur-
rent globalization era pushed the opening of markets. Second, the rapid and
successful emergence of the new world wine countries changed the dynamics
of international markets, increasing competition and leading to new business
models and new forms of regulation. Third, the new entrants, at least some of
them, wanted to promote a more liberal approach to issues related to the
international markets. In the face of the European interventionist model—
The author thanks the comments made by Tony Battaglene
R. Compés López (*)
Department of Economics and Social Sciences, Universitat Politècnica de València,
València, Spain
e-mail: rcompes@esp.upv.es

https://doi.org/10.1007/978-3-319-98633-3_12
mmorag@uchile.cl
254 R. Compés López
created to monitor the supply and protect the origin in keeping up a main
standard of quality—the new world model was based on self-governance and
private coordination in order to reach common goals, mainly in the fields of
innovation and in external markets (Castillo et al. 2014).
EU policy had to react to these changes, a reaction which took place on
several levels: modifying internal changes of its wine’s rules in 2008, pressing
the WTO to defend geographical indications (GI), and strengthening the
OIV’s role in harmonizing standards. In the twenty-first century, a new para-
digm in wine regulation began to spread.
Globalization increases interdependence among countries, and the wine
sector is one of the paradigms of the globalization movement in the agrifood
sector (Dubois 2013). In the field of policies, this pushes toward cooperation
and the pursuit of convergence or, at the very least, coexistence of standards
(Bingen and Busch 2006). This process is carried out in the frame of interna-
tional organizations and through multilateral, plurilateral, or bilateral agree-
ments (Dai 2007). One of the most relevant of all them is the WTO because
it sets the framework for trade policies, internal policies that can distort trade,
and, very often, other agreements.1
However, other specialized institutions also play an important role in the
design of wine policies. The most important is the OIV, but the World Wine
Trade Group (WWTG) must also be taken into account. Although there are
clear differences between the two, they share the ultimate aim of promoting
trade and facilitating business performance. In a global perspective, the OIV
represents the search of convergence through harmonization (Juban 1994;
Tinlot 2000) and the WWTG through recognition and mutual equivalence
(Battaglene and Barker 2008). The OIV is a hard institution with European
roots in which both new and old world countries participate, while the
WWTG is a soft institution supported mainly by the United States and con-
sisting of “new world” countries.2 Even though the OIV and WWTG do not
compete directly, they represent two ways of understanding interdependence
1
WTO is the main influence in national—both internal and trade—policies. Some of the WTO agree-
ments have direct influence over wine policies. It is a case of horizontal agreement for the Agriculture,
SPS, and TBT and also for the TRIPS, who have specific provisions for protecting geographical indica-
tion of wines.
2
From the emergence of “new” non-European producers after the Wine Tasting of 1976, also called the
Judgement of Paris (Taber 2006), it is usual to divide wines into the new and the old worlds (Anderson
2003). This taxonomy is currently employed (Schirmer 2007), even if differences between the two are
becoming weaker (Banks and Overton 2010), due to the bilateral and reciprocal influences in policies
and management models.
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International Wine Organizations and Plurilateral Agreements… 255
policies in the framework of the WTO, and their philosophies fit the theoreti-
cal essence of the old and new worlds, respectively.
In this chapter we are going to analyze the role of the OIV and the WWTG
in wine policies. This is an important topic because these institutions have
received minimal attention throughout the analysis of wine’s economic policy
(Randelli and Dini 2013; Meloni and Swinnen 2013). The OIV has gained
international recognition as the first source of technical harmonization in the
wine sector (Hannin et al. 2006), and the WWTG is trying to go beyond this
as a source of technical equivalence agreements.
12.2 The OIV3

12.2.1 Past and Present
The current OIV is the result of the evolution of several different actions of
wine-producing countries in defending their common interests. The roots of
this organization can be traced to the Congress held in Montpellier in 1874,
where some European countries met to collaborate in the fight against phyl-
loxera. Some years later, once the phylloxera challenge was overcome, in the
Congress of Geneva, 1908, and Paris, 1909, the new common interest was in
the prevention of fraud.
With these positive antecedents facing the international challenge of viti-
culture, in 1922 the French Society for the Encouragement of Agriculture sug-
gested the creation of an international wine organization. The result was the
creation of an International Wine Office (OIV) through an agreement dated
November 29, 1924, between the governments of eight countries: France,
Greece, Hungary, Italy, Luxembourg, Portugal, Spain, and Tunisia. It began
its operations in Paris in 1928 (Peaslee 1974). On September 4, 1958, the
organization’s name was changed to the International Vine and Wine Office,
in order to allow the incorporation of countries producing table grapes and
dried grapes.
The International Vine and Wine Office was transformed into the
International Organisation of Vine and Wine by decision of its General
Assembly on December 5, 1997, in Buenos Aires (Argentina). Its mission was
to modernize the resources of the office and to ease its adaptation to the world
Most of the descriptive information on this point comes from the OIV website and from OIV docu-
3
ments and presentations.
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context of the vitiviniculture sector. The agreement for the new organization
was established on April 3, 2001, between 35 nations4 and went into effect on
January 1, 2004, based in Paris.
Today, the OIV has 46 member states throughout five continents, among
which 21 are members of the European Union. It has also some territory and
organization observers, most of them producers but also mainly consumers.5
They account for about 85% of wine production and 80% of wine consump-
tion worldwide. Its total budget, decided each year by the General Assembly
and coming mostly from members’ financial contributions, amounts to 1.5
million euros. The current president is the German Professor Dr. Monika
Christmann, appointed during the 38th World Congress in Mainz, July 2015.
The United States is the only large producing country that is currently not
an OIV member. In fact, it was previously a member as of 1984 but left the
organization in 2001. The causes seem to be differences between the United
States and European countries in matters of oenological standards and geo-
graphical indication protection and a representation system in which they
were sometimes the minority.6
But in spite of US absence, the OIV is the most influential intergovern-
mental organization in the wine world. Its nature is scientific and technical,
and its main role is setting standards for all products derived from the vine
(vines, wine, wine-based beverages, table grapes, raisins, and other vine-based
products). This involves drafting resolutions, recommendations, and propos-
als on various aspects of the production of and trade in wine products (i.e.
oenological practices, product descriptions and definitions, labeling rules,
marketing conditions, analysis and assessment methods, the protection of
geographical indications, and the protection of varieties).
4
Republic of Algeria, Federal Republic of Germany, Republic of Argentina, Australia, Republic of
Austria, Republic of Bolivia, Federal Republic of Brazil, Republic of Chile, Republic of Cyprus, Kingdom
of Denmark, Kingdom of Spain, Republic of Finland, Republic of France, Republic of Georgia, United
Kingdom, Hellenic Republic, Republic of Hungary, State of Israel, Republic of Italy, Republic of
Lebanon, Grand Duchy of Luxemburg, United Mexican States, Republic of Moldavia, Kingdom of
Norway, New Zealand, Kingdom of the Netherlands, Republic of Portugal, Romania, Republic of
Slovakia, Kingdom of Sweden, Swiss Confederation, Czech Republic, Republic of Tunisia, Republic of
Turkey, Eastern Republic of Uruguay.
5
AIDV (International Wine Law Association), Amorim Academy, AREV (Assembly of Wine-Producing
European Regions), AUIV (International University Association of Wine), CERVIM (Centre for
Research, Environmental Sustainability and Advancement of Mountain Viticulture), FIVS (International
Federation of Wines and Spirits), OENOPPIA (Oenological Products and Practices International
Association), UIOE (Union Internationale des Œnologues), VINOFED (World Federation of Major
International Wine and Spirits Competitions), ASI (Association de la Sommellerie Internationale), WIM
(Wine in Moderation), Yantaï (China), prefecture-level municipality and Ningxia Hui autonomous
region, China.
6
More information about this issue can be found in http://www.senat.fr/rap/l03-095/l03-0951.html
mmorag@uchile.cl
12.2.2 Functioning and Activities
The main body of the OIV is the General Assembly, composed of dele-
gates nominated by members. It delegates some of its powers into the
Executive Committee, which then entrusts some of its routine adminis-
trative powers to the OIV Steering Committee. The Office of Director
General (who as of January 1, 2014, is Mr. Jean-Marie Aurand) is respon-
sible for the internal administration of the OIV, which is composed of 14
members.
The OIV conducts its scientific and technical activity through expert
groups, two sub-commissions and four commissions, coordinated by a
Scientific and Technical Committee. This committee presents proposals to
define the work and activity programs of the bodies of the organization.7
Participating in the expert groups, sub-commissions and commissions are
close to 1000 scientific representatives and experts that are appointed and
managed by government authorities in OIV member states. They come from
the scientific community and also, to a considerable extent, from the profes-
sional sector.
The resolutions of the General Assembly and the Executive Committee are
adopted by general consensus and are usually incorporated, with no change to
their legal scope, into more detailed standards—usually in the form of codes,
periodically updated on the basis of the resolutions adopted by the
organization.8
The main activities of the OIV are:
1. Contributing to international harmonization of existing practices and

standards, in order to improve the conditions for producing and marketing
vine and wine products and to help ensure that the interests of consumers
are taken into account. The OIV resolutions are addressed to governments
in the form of recommendations (Exhibit 12.1).
7
The four commissions are Viticulture, Oenology, Economy and Law, Safety and Health; and the two
sub-commissions Methods of Analysis and Table Grapes, Raisins and Unfermented Vine Products; with
the expert groups to support their tasks.
8
For instance, the International Oenological Codex, the Compendium of International Methods of
Analysis of Wine and Must, the Compendium of international methods of analysis of spirited beverages,
international standards for wine and spirit competitions, and the international standard for labeling
wines and spirit drinks.
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Exhibit 12.1 The Case of the EU

In the case of the EU, the standards and resolutions of the OIV are adopted auto-
matically into their wine norms. Due to this, the Council Regulation (EC) No
479/2008 on the common organization of the market in wine stipulates that, in
the matter of authorizing new oenological practices, the commission is to “base
itself on the oenological practices recommended and published by the
International Organisation of Vine and Wine (OIV)” and, on the subject of meth-
ods of analysis, “the methods of analysis for determining the composition of the
products covered by this Regulation and the rules whereby it may be established
whether these products have undergone processes contrary to the authorized
oenological practices shall be those recommended and published by the OIV”,
and compliance with the standards recommended by the OIV for oenological
practices also becomes a sufficient condition for marketing wines from third
countries on the community market.
2. To assist other international organizations, both intergovernmental and

nongovernmental, especially those that carry out standardization activities
(Exhibit 12.2).
Exhibit 12.2 The Case of the Codex

The OIV collaborates with all intergovernmental and international organizations
which are directly or indirectly concerned with vines and wine (WTO, FAO, Codex
Alimentarius, WIPO, FIVS, AUIV, WCO, UPOV, OIML, and CIHEAM) in order to
accomplish its aims. In particular, the OIV must guarantee that the codes of the
OIV are coherent at an international level and that they are technically sound. In
this framework of particular interest is the collaboration with the Codex
Alimentarius because their norms, direct ices, and standards are a reference for
the WTO (in particular the SPS Agreement) and therefore for international trade.
The OIV is a privileged partner of the Codex Alimentarius in the field of wine
and wine products, in particular with regard to additives and processing aids. So,
the Secretariat of the OIV participates in work on “acidity regulators” and
“emulsifiers, stabilizers, and thickeners” electronic working group on food addi-
tives and submitted comments relating to the category “grape wine”, although
it lacks a cooperation protocol to confirm the OIV as technical and scientific
organization of recognized competence in the field of vine and wine and a sys-
tematic strategy of member states aimed at consolidating relations between the
two organizations with regard to wine products.
3. Compilation of global statistics such as area under vines, production (fresh

grapes, raisins, wine), trade, and consumption, as well as economic and
statistical analyses to influence decisions made.
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4. Formation and training. The OIV establishes and coordinates the develop-
ment of international research on emerging topics—impact of climate
change, environmental issues, concern related to the consumption of
wine—and training programs in the sector. It fosters contacts and scien-
tific exchanges and training in countries throughout the world. This
includes the OIV MSc in “Wine Management”, created in 1986, and the
World Congress of Vine and Wine, now in its 41st year.
5. Patronage and competitions. The OIV may grant patronage to interna-
tional scientific conferences or national and international wine and spirits
of vitivinicultural origin competitions, provided that their organization
and internal rule procedures are in accordance with the international stan-
dards of the OIV.
12.3 WWTG9
12.3.1 Nature and Goals
Unlike the OIV, the WWTG is an informal plurilateral group of government

and industry representatives from some wine-producing countries mainly of
the “new world”—in fact, initially it was called the New World Wine
Producers’ Forum. It was founded in 1998 in Zurich by Argentina, Australia,
Canada, Chile, New Zealand, South Africa, and the United States. The
Republic of Georgia attended its first WWTG meeting in 2008 and became
a full member, acceding to the WWTG agreements, in 2010. The WWTG
members accounted for 29% of the global wine trade and 29% of wine exports
in 2013.10
9
The main sources of information for the above are the WWTG website (http://www.wwtg-gmcv.org/),
the US Department of Commerce (http://ita.doc.gov/td/ocg/wwtg.htm), the US Department
of Treasury/Alcohol and Tobacco Tax and Trade Bureau (http://www.ttb.gov/itd/world_wine.shtml),
and Wine Institute (https://www.wineinstitute.org/). The Wine Institute is the voice for California wine
and represents more than 1000 wineries and affiliated businesses. It works closely with several US official
entities on tariff and trade barrier reduction, free trade agreements, and other negotiations to grow US
wine exports globally.
10
The WWTG welcomes participation in the group as observers of any national governments or mem-
bers of the World Trade Organization interested in furthering these goals. Other countries that have
participated in the meetings are China, Mexico, Paraguay, Uruguay, Brazil, and Moldova. In 2006, it set
down principles derived from the WWTG agreements that could be applied in other international con-
texts. The most important extension initiative has been the development of the APEC Wine Regulators
Forum (WRF).
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The group has no formal membership, membership fees, and secretariat.

The participants share the responsibility of chairing the WWTG, with the
chair position rotating on an annual basis. The country that has the chair
functions acts as secretariat and organizes the meetings of the group (one or
two meetings per year). Meetings are attended by both government and wine
industry representatives (in joint and separate sessions). During the
Washington, DC-based WWTG meetings held in July of 2006, participants
adopted the first industry section strategic plan, together with an integrated
set of action plans to achieve the specified goals and objectives. WWTG also
facilitates cooperation between their members to improve international
markets.11
The main aim of the group is to facilitate international trade, to avoid trade
obstacles, and to liberalize wine trade. For that, it promotes joint actions for
the removal of trade barriers,12 and instead of looking for harmonization, it
searches for mutual acceptance of rules rather than imposing a single regula-
tory approach, given that it recognizes the unique characteristics of each regu-
latory system.
The reason for this emphasis in trade and mutual equivalence is that all of
these countries integrated in the WWTG share an orientation toward external
markets and have a great potential of growth production. They are very con-
cerned with barriers to their exports, in particular the non-tariff barriers into
the EU markets. They consider labeling requirements, tariffs, and appellation
of origin or geographical indication as strong barriers.
12.3.2 Activities and Agreements
The main outputs of the WWTG have been two agreements which are at the
core of their framework—a memorandum and a protocol—and two state-
ments. Additionally, a January 2007 meeting included, for the first time, a
Regulators Forum to provide regulatory bodies with an opportunity to discuss
possible approaches to emerging regulatory issues. In 2008, the WWTG also
11
Four WWTG members (Chile, Argentina, New Zealand, and South Africa) plus California formed the
New World Wines Alliance. On March 10, 2010, they joined forces and put on an unprecedented com-
bined show named “Down to Earth” at ProWein in Germany. ProWein is one of the leading trade fairs
for the international wine and spirits industry (Source: The World Wine Trade Group And The Need To
Promote Cooperation Among Wine Producers Of The New World, Marcela B. Knaup; This article was
first published by the International Trade Committee Newsletter of the American Bar Association, Section of
International Law, Volume IV, No 3, 8-2010).
12
The decision to change the name of the group to World Wine Trade Group was to reflect the focus of
the group on facilitating trade in wine.
mmorag@uchile.cl
represented the global wine industry, in conjunction with the CEEV (Comité
Européen des Entreprises Vins, the representative professional body of the EU
industry and trade in wines) at the WTO consultation on its strategy for
reducing the harmful use of alcoholic beverages. In 2011, a joint meeting was
held between FIVS13 and WWTG on sustainability, which identified impor-
tant synergies between WWTG and non-WWTG industries around this
topic; finally, in 2015, a winegrowing report was produced.
The Mutual Acceptance Agreement (MAA) on Oenological (winemaking)
Practices was signed in Toronto, Canada, in December 2001 by the United
States and Canada, with Argentina becoming a signatory in December 2002.
By 2005, all WWTG participants had ratified the MAA with the exception of
South Africa, which ratified the MAA in 2011. Under that agreement, each
country will permit the importation of wines from every other signatory
country as long as these wines are made in accordance with the producing
country’s domestic laws, regulations, and requirements on oenological prac-
tices. The agreement recognizes that different countries use different wine-
making practices due to local conditions, climatic variations, and traditions,
and that grape-growing and winemaking practices are constantly evolving.14
The Agreement on Requirements for Wine Labelling (Labelling Agreement)
was signed on January 23, 2007, in Canberra, Australia, by all participants
with the exception of South Africa. It enables wine exporters to sell wine into
WWTG markets without having to redesign all of their labels for each indi-
vidual market. Under the Labelling Agreement, the WWTG participants
have agreed to a single field of vision approach to wine labeling in order to ease
the comparison of different wines for consumers, whereby four key common
items of information (country of origin, product name, net contents, and
alcohol content) are deemed to comply with domestic labeling requirements
if they are presented together in any singular field of vision on the container.
WWTG countries consider that these principles of clarity, consistency, and
efficiency for wine labeling could provide the basis for a global standard if
adopted by sufficient international bodies and countries—given that Codex
Alimentarius Commission does not have an international standard for wine
labeling.
On March 21, 2013, in Brussels, phase two of the Labelling Agreement
was concluded through the Protocol to the Agreement on Requirements for
Wine Labelling. This extends the earlier Labelling Agreement by providing
13
Since 1951, is the International Alcoholic Beverage Federation, siege in Paris.
14
A copy of the Mutual Acceptance Agreement is available on the US Department of Commerce website
at:www.ita.doc.gov/td/ocg/eng_agreement.htm
mmorag@uchile.cl
for a degree of harmonization of rules regarding alcohol tolerance, variety,

wine region, and vintage.
In October 2011, the United States, along with representatives from
Argentina, Australia, Chile, Georgia, and New Zealand, signed a Memorandum
of Understanding (MOU) on Certification Requirements, which aims to
reduce barriers to international wine trade by encouraging the elimination of
burdensome requirements and routine certifications of wine products and
ingredients. The certification provides that routine certification of wine com-
position should not be required other than on health and safety grounds con-
sistent with WTO rules, as well as requiring that any certification must be in
line with Codex standards.15
In 2014, the WWTG governments approved the groundbreaking “Tbilisi
Statement” of international principles for nations to use when establishing
wine regulations. The “Statement on Analytical Methodology and Regulatory
Limits” encompasses 11 science-based regulatory principles to help remove
unnecessary obstacles in the international wine trade. These principles are a
major step forward in bringing regulatory coherence to international wine
trade.
12.4 Conclusions
The globalization of wine markets is pushed forward by several factors. On
the institutional side, the most important are the broad liberalization caused
by the WTO agreements and the soft wine rules created by the EU’s reaction-
ary reforms of 2008 toward new world wine countries model. This move is
accompanied by the role of international organizations such as the OIV and
the WWTG. The first attempts to promote harmonization and the second the
mutual acceptance and recognition of standards, two different ways to facili-
tate trade and promote business. The OIV is stronger with a more global
influence, but the fact that the United States is not included could be seen as
a weak point.
There are no formal relations between WWTG and OIV, although many
WWTG participant countries also participate in the OIV. While they don’t
15
Any countries require certification of compositional requirements for wine, which can act as an unnec-
essary barrier to trade, particularly when they do not relate to a health or safety issue in relation to wine
or when the exporting country already has adequate systems in place to address such issues. Noting that
the MAA already provided that routine certification should not be required between parties for oenologi-
cal practices.
mmorag@uchile.cl
directly compete, their philosophies are very different. WWTG is smaller and
nimbler due to having fewer members. It also has a direct link between indus-
try practitioners and government, while the OIV have a strong influence from
governments and from public and private researchers. The WWTG exists to
facilitate trade and because of the unique partnership between industry and
government can develop international trading agreements to facilitate trade.
It also provides a strong link to the Asia-Pacific region due to well-developed
relationships.
The OIV, despite its broad international nature, has a European focus, and
its main activity is the establishment of standards and the development and
approval of new practices. Perhaps a formal relationship with the European
Commission could cause tensions with non-EU member states. However,
even if some differences in regulation continue existing, and “new world”
countries approach seems more liberal and trade oriented, the world of wine
is every day more interconnected, and all big producers depend more and
more on exports. In this situation, “new world” and “old world” trademarks
seem every day less pertinent, which should drive to a convergence between
WWTG and OIV.
References
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the wine sector: Harmonisation, equivalence and mutual recognition. Bulletin de
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Meloni, G., and J.F.M. Swinnen. 2013. The political economy of European wine
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mmorag@uchile.cl
13
The European Wine Policies: Regulations
and Strategies
13.1 Introduction
Over the years the European Union (EU) has introduced a number of mea-
sures/instruments designed to address the problems of income instability and
supply control: until the middle of the 1980s, the principal goal of the EU
wine policies was to ensure the development of productivity, create market
stability, and provide income support (EU Commission 2002, 2006). Since
the beginning, the context in which those reforms were forged has shifted
significantly. In particular, the wine policy changed from a policy based on
subsidizing production and the protection of domestic markets from non-
European producers to a policy that aims to stimulate quality production and
the competitiveness of the wine sector on the international scene. Many econ-
omists have been addressing wine policies and their effects (such as Anderson
2004, 2010, 2014; Anderson and Jensen 2016; Coleman 2010; Dal Bianco
et al. 2016; Malassis 1959; Mariani et al. 2012; Montaigne and Coelho 2006;
Corsinovi and Gaeta 2016, 2017; Meloni and Swinnen 2013, 2016;
Niederbacher 1983; Pomarici and Sardone 2001, 2009; Spahni 1988).
This chapter is divided into three sections. Section 13.2 analyzes the main
drivers that have characterized the EU wine policy from the first Common
P. Corsinovi (*)
Centre of Economics, Hochschule Geisenheim University, Geisenheim, Germany
D. Gaeta
Department of Business Administration, University of Verona, Verona, Italy
e-mail: davidenicola.gaeta@univr.it

https://doi.org/10.1007/978-3-319-98633-3_13
mmorag@uchile.cl
Market Organization (CMO) introduced in 1962 until the 2013 reform, fol-

lowed by three main different public policy orientations and strategies that
occurred in those years: phase (1) price and income support; phase 2, quality of
wine; and phase 3, competitiveness. The policy analysis is supported by the
analysis of budget expenditure (in Sect. 13.3) that has characterized the public
interventions in 45 years (1970–2015). In Sect. 13.4, the authors focus the
analysis on the protection model for EU quality wines, based on a pyramid-
structured project that is becoming more restrictive as they gradually move up
the pyramid from the base to the peak and its recognition at the international
level and role of the World Trade Organization (WTO).
13.2 T
he Development of European Wine
Policies: Objectives
Under the framework of the Common Agricultural Policy (CAP), the CMOs1
were created with the scope to (1) implement a gradual convergence (agree-
ment) of prices, (2) eliminate customs barriers, and (3) establish a single mar-
ket for products under one common customs tariff for the rest of the world.
From 1962 to 2007, 21 agricultural products were governed by their respec-
tive CMOs: from 2007 the CMO has incorporated within a single regulation
all of the agriculture products (including the wine sector). The CMO of wine
constitutes the legal and regulatory basis of the European wine market, cover-
ing all the rules from vineyards to wine production, from labeling to interna-
tional trade.
The CMO of wine was initially established under the CAP in 1962 when
the first legal text was created. Only in 1970 two formal regulations were
published: one related to interventions on table wines (Reg. 816/1970) and
the other concerning production of quality wines (Reg. 817/1970). During
these years, the most important rules were adopted in 1987 (Reg. 822/1987),
in 1999 (Reg. 1493/99), in 2008 (Reg. 479/2008), and in 2013 under the
CAP reform (Reg. 1308/2013).
1
The Common Agricultural Policy (CAP) is the main agricultural policy instrument of the EU. Today, it
is organized in two pillars. Pillar I defines and funds market measure and it is founded by the European
Agricultural Guarantee Fund (EAGF). Pillar II regards the Rural Development Programs (RDP), aimed
to improve quality of life in rural areas, to support young farmers setting up a farm for the first time, and
to introduce measures for investments and innovation in farms. Measures under Pillar II are financed by
the European Agricultural Fund for Rural Development (EAFRD) and co-financed by EU Member
States.
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The European Wine Policies: Regulations and Strategies 267
The objective of this part is to analyze the main drivers that have character-
ized the EU wine policy from 1962 until the last reform in 2013. The latest
wine reform adopted by the EU in 2008 and included in the 2013 single
CMO had the following goals:
• Making EU wine producers even more competitive—enhancing the repu-

tation of European wines and regaining market share both in the EU and
outside
• Making the market management rules simpler, clearer, and more effec-
tive—to achieve a better balance between supply and demand
• Preserving the best traditions of European wine-growing and boosting its
social and environmental role in rural areas
As far as the wine sector is concerned, the 2013 CAP reform, in addition to
its general goals to harmonize, streamline, and simplify the provisions of the
CAP, maintains the fundamentals of the 2008 wine reform.2
The authors focus on the main public policy orientations that occurred in
those years for the wine sector: the first, being referred to as price and income
support, the second as quality of wine, and the third as competitiveness.
Table 13.1 summarizes three orientations—the main interventions in
force, their period of implementation, and the outcome. The analysis of total
wine expenditure will be presented in the following section: the impact of
orientations on the total budget is shown in Fig. 13.2; Table 13.2 shows the
main expenditure’s line in millions of euros and % on the total budget
(1970–2015).
Reflecting on the future of the wine policy strategies and monetary sup-
port, Fig. 13.2 shows the financial scheme of the provision budget expendi-
ture from 2014 to 2018 and published by the EU in the last reform in 2013
(Reg. 1308/2013). The data on expenditures has been collected from the
European Agricultural Guidance and Guarantee Fund (EAGGF) and National
Support Programs (annual financial report). The dataset created by the authors
covers the CMO expenditures (included in the guarantee fund and EU own
budgetary) but excludes the expenditures of the rural development funds and
the co-financing from the Member States. The future amounts are available at
EU Commission (Agriculture Direction) and published in the annex of Reg.
1308/2013 that establishes a common organization of the markets in agricul-
tural products.
https://ec.europa.eu/agriculture/wine_en
2
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Table 13.1 The development of European wine policies

Orientations Interventions Implementation Outcome
1. Price and Distillation schemes a
1976–2012 – Market equilibrium by
income support reducing surplus
quantities
Market withdrawals 1970–1999 – Income stability of
producers
Buying-in of alcohol 1970–1999 – Balancing enrichment
from compulsory costs
distillation
Aid for concentrated 1976–2013 – Export supports
grape must
Aid for storagea 1987–2008 – Improving production
potential
management
Export refunds 1987–2008
Regulatory 2008–2013
measuresa
Other intervention
expendituresa
2. Quality wines Grubbing up/ 1976–2011 – Adapting vine supply
abandonment to market demand
Restructuring and 1979–2018 – Improving production
reconversion potential
management
Green harvesting 2008–2018 – Restructuring
production potential
in terms of quality and
quantity
3. Promotion in third 2008–2018 – Improving
Competitiveness countries development and
Investments in 2008–2018 competition of the
enterprises wine sector
Innovation 2013–2018
Source: Corsinovi and Gaeta (2017), European Commission (2002)
a
The “aid for storage” included the aids for private and public storage and aid for
re-storage of table wine. The “distillation schemes” covered the aids: obligatory
distillation of table wine (1982); voluntary distillation (1976) of table wine;
compulsory distillation of by-products of wine-making; crisis distillations (1999);
potable alcohol distillation (1999); distillation of dual-purpose grapes (1987);
preventive distillation (1987). “Regulatory measures” regard single payment
scheme, harvest insurance, and mutual funds. The “Other interventions
expenditures” is the sum of incentives/interventions linked to income and price
support
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13.2.1 The Era of “Prices and Income Support”
The first orientation strategy (Table 13.1) was identified as price and income
support. Most of the interventions introduced between 1970 and 1979 were
addressed to help and stabilize the income of the wine producers and defend
the internal wine market of the EU.
More specifically three forms of distillations were implemented,3 with the
expectation to achieve market equilibrium by reducing surplus quantities.
The objectives were twofold: to guarantee a fair price for producers while cre-
ating more effective measures to tackle growing market surpluses. As a conse-
quence, market withdrawals and buying-in of alcohol from compulsory
distillation were supported with the goal to remove wine and alcohol from the
market. The aids for concentrated grape must4 were meant to balance the
increasing costs of producers in southern and northern wine-growing regions:
in order to compensate for the competitive disadvantage suffered due to the
higher cost of enrichment using must incurred by producers who were banned
from using sugar to regulate alcoholic strength. The storage for table wine and
grape musts should have encouraged producers to take surplus wine off the
market, thus supporting market price stabilization. Export refunds were fixed
by the difference between EU table wine prices (for wines to be exported) and
the prices of these wines in the world market. The measure was implemented
with the aim to establish a basis for commercial exports; however, it proved to
be an instrument for helping to reduce and pay the EU’s structural surplus of
table wines.
From 2008, the EU introduced other market measures and direct pay-
ments to wine farmers with the aim to regulate wine markets and stabilize the
income. In the regulatory measures (see note Table 13.1), the authors had
3
(1) Obligatory distillation of wine from dual-purpose grapes, which originate from other grape wine
varieties or dual-purpose grapes produced in excess of the normal verified quantity. (2) Obligatory distil-
lation of by-products as wine lees and grape marc. (3) Voluntary distillation for table wine or distillation
“with a guarantee of proper use” for those with long-term storage contracts. A few years later, with the
reform in 1987, three distillations were voluntary and could be chosen by the producer: (1) distillation
supplementary to long-term storage contracts, (2) preventive distillation, and (3) support distillation.
Whereas the remaining three were compulsory: (1) distillation of by-products, (2) distillation of wines
other than table wines, and (3) distillation of table wines. The 1999 (Reg. 1493/99) reform provided for
two types of compulsory distillation, (1) wine obtained from dual-purpose grapes and (2) by-product
distillation, and two types of voluntary distillation: (3) for the production of potable alcohol and (4) crisis
distillation.
4
Use of must for enrichment in order to compensate for the competitive disadvantage suffered due to the
higher cost of enrichment using must incurred by producers who were banned from using sugar to regu-
late alcoholic strength.
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270
Table 13.2 Total CMO wine expenditures, 1970–2015

1970–2015 1971–1980 1981–1990 1991–2000 2001–2010 2011–2015
Million € % Million € % Million € % Million € % Million € % Million € %
Distillation schemesa 9608.74 21.3 546.00 34.1 5131.99 38.4 2589.76 17.0 1043.52 12.9 297.48 4.4
Market withdrawals 6679.11 14.8 563.48 35.2 3494.62 26.1 2621.00 17.2 0.00 0.0 0.00 0.0
Buying-in of alcohol from compulsory 4341.75 9.6 0.00 0.0 1176.73 8.8 1484.61 9.7 1680.40 20.8 0.00 0.0
distillation
P. Corsinovi and D. Gaeta
Aid for concentrated grape must 3523.95 7.8 18.15 1.1 868.61 6.5 1328.23 8.7 882.82 10.9 426.14 6.3
Aid for storagea 3558.10 7.9 318.04 19.8 1221.59 9.1 1871.35 12.3 147.12 1.8 0.00 0.0
Export refunds 1046.64 2.3 36.92 2.3 270.51 2.0 540.71 3.5 198.50 2.4 0.00 0.0
Regulatory measuresa 719.32 1.6 0.00 0.0 0.00 0.0 0.00 0.0 73.65 0.9 645.66 9.5
Other intervention expendituresa 2760.37 6.1 91.71 5.7 942.17 7.0 1726.00 11.3 0.00 0.00 0.00 0.0
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Grubbing up/abandonment 3743.06 8.3 0.00 0.0 214.36 1.6 2330.92 15.3 939.03 11.6 258.76 3.8
Restructuring and reconversion 6167.34 13.7 26.88 1.6 40.02 0.3 743.73 4.8 2743.33 33.9 2613.38 38.6
Green harvesting 953.19 2.1 0.00 0.0 0.00 0.0 0.00 0.0 147.79 1.8 805.40 11.9
Investments and innovations 944.92 2.1 0.00 0.0 0.00 0.0 0.00 0.0 92.98 1.1 851.94 12.6
Promotion in third countries 980.83 2.1 0.00 0.0 0.00 0.0 0.00 0.0 122.39 1.5 858.45 12.7
Total expenditures 45,027.31 1601.19 13,360.60 15,236.32 8071.53 6757.19
Source: Author’s dataset (our elaboration from EAGGF annual expenditures), Corsinovi and Gaeta 2017)
a
See notes in Table 13.1
included three interventions in accordance with the CMO Regulation

479/2008: single payment scheme (SPS) and harvest insurance.5 Direct pay-
ments under the SPS were based on reference amounts of direct payments
that were received in the past or on regionalized per hectare amount. The
harvest insurance contributes to protecting the producer’s financial status if
affected by natural disaster, adverse climatic events, diseases, or pest infesta-
tion. Harvest insurance has absorbed a limited amount of resources partly due
to the fact that it can be funded using other CAP measures (article 68, Health
Check Reform).6
The policy orientation phase 1 price and income support has dominated the
scene for more than 40 years. Due to the above description, European wine
has suffered from issues relating to its recurring overproduction quantities,
which was first developed in the 1970s, and worsened by the early 1980s.
Among the interventions adopted in this orientation, the case of distillation
scheme and buying-in of alcohol was significant. The distilleries continued to
produce the alcohol because of the profit margin involved, and as for produc-
ers, it had become more convenient to produce wine solely for distillation.
On the other hand, the distillery received support for the distillation, which
was calculated in such a way as to compensate for the difference between the
distillery’s costs and the alcohol’s market price. They paid the producer a min-
imum price, which varied depending on the quantity and type of wine or
wine by-product to be distilled (Gaeta and Corsinovi 2014).
13.2.2 The Era of “Quality Wines”
CMO policies should have encouraged the wine sector to bring supply into
line with demand in terms of both quantity and quality (EU Commission
2002). As a consequence of high costs and surplus quantities, EU recognized
5
Among these, only the single payment scheme (SPS) and harvest insurance were financed in the wine
sector between 2008 and 2015. Support for setting up mutual funds was created in order to provide
assistance to producers seeking to insure themselves against market fluctuations. The measure is subject
to national (and local) choices and covers the amounts paid by the mutual fund to holders of financial
compensation.
6
Article 68 allowed all Member States to retain up to 10% of their national ceilings for direct payments
to provide support to specific sectors, for an expanded range of purposes: payments for disadvantages
faced by specific sectors (dairy, beef, sheep and goats, and rice) economically vulnerable, support for risk
assurance in the form of contributions to crop insurance premium, contributions to mutual funds for
animal and plant diseases, and so on.
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the need to focus on just quality of wines and consumer-oriented approach to

production and development of quality wine policies.7
This was the basis of the second orientation (Table 13.1). The scenario was
imagined to develop the quality of wine (phase 2) through rules designed to
address the management of production potential with three main interven-
tions on the vineyards: (a) the ban on planting and incentive of grubbing up,
(b) restructuring and vineyards reconversion, and (c) green harvesting.
The EU introduced the ban on planting and the incentive for the grubbing
up and permanent abandonment and developed the funds for the restructur-
ing and vineyard reconversion with the outcome to adapt wine supply to
market demand and restructure vineyard production in terms of quality and
quantity on the other (Table 13.1).
The ban and grubbing up was introduced with the aim to create a wine
sector adapted to market conditions by allowing less competitive vineyards to
be permanently removed. Europe gave producers the possibility of reducing
costs and permanently abandoning wine production in areas where that activ-
ity was no longer profitable, giving them the opportunity to abandon agricul-
tural production altogether. From 1976 (Reg. 1162/1976) a ban on new
planting and the obligation to distill the surplus production were introduced
and toward the end of the 1980s financial incentives for voluntary grubbing
up vineyards were increased (especially during the period 1991–2008).
This essentially withdrew the principle of the producer being free to plant
and, for the first time, introduced a transitory ban on replanting or planting
new varieties and created a regulatory system for planting and replanting
rights. The existing ban on new plantings has been maintained and the provi-
sions regarding replanting rights did not significantly change. When the sys-
tem was first introduced, the ban of new plantings was considered a temporary
measure but, since the CMO reform in 2013, has been continually
extended.8
7
In the political economy mechanism of quality wine regulation, Meloni and Swinnen (2013) provide
interesting analyses of the expenditure distribution effects.
8
The basic principle of the planting rights measures is that vines cannot be planted unless a right to
replant or a right to make a new planting is held by the vine-grower. The CMO in 2013 abolished the
total ban on the planting of new vineyards and replaced the transitional planting rights from 2016 to
2030 by a new system of authorizations for vine planting, for which Member States shall make available
each year authorizations for new plantings corresponding to 1% of the total area actually planted with
vines in their territory, as measured on 31 July of the previous year. Planting rights granted to producers,
which have not been used by those producers, may be converted into authorizations as from 1 January
2016. Member States may decide to allow producers to submit requests to convert rights into authoriza-
tions until 31 December 2020. As a replacement, personal authorizations are granted free of charge,
which are no longer transferable to the market.
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Since 1980, restructuring and vineyard reconversion represents one the

mosts import instrument impleneted to support the qualitywines (Orientation/
Phase 2). This measure has been implemented with the goal to increase the
competitiveness of wine producers through paying compensation for the loss
of revenue while a vineyard is being adapted and as a contribution to the costs
of restructuring and conversion. The necessary restructuring of old vineyards
was done on the basis of increasing production quality using machinery and
introducing all the innovative processes.
Following the aim of supplying grape management and improving quality,
the green harvesting measure was introduced from 2008. This provided for
the total destruction or removal of bunches of grapes while still at an imma-
ture stage, therefore reducing the yield to zero. Restructuring and green har-
vesting represented the most expensive measures implemented during
the phase 2 (quality wines), as shown in Table 13.2.
13.2.3 The Era of “Competitiveness”
While the EU debated on how to resolve the high budgetary expenditures and
the consequences of overproduction and wine stock, the international compe-
tition was becoming ever stiffer.
In 2005 accumulated wine stocks represented the equivalent of one year of
production and the structural surplus was estimated at approximately 14.5
million hl, equivalent to 8.5% of the total production. The EU wine produc-
ers were finding themselves at a disadvantage compared to those from third
countries, who were often represented by a few restrictive production and
market rules, large multinationals, and massive marketing operations. One of
the greatest fears for the EU Agriculture Commission was the “attack” of new
wine players on EU market: the imports from New World wine countries
have increased substantially and the EU wine market was confronted with a
reduction in the demand for domestic produced wines as overall consump-
tion of wine has decreased especially in the most wine-procuring countries
(EU Commission 2006). Although intentions were good, the problem was
resolved too late. Among traditional European producer and/or consumer
countries, the main EU producer countries (France, Italy, and Spain) show a
negative average between 2000 and 2013. These values demonstrate the dif-
ficulty that EU countries have covering internal consumption (Gaeta and
Corsinovi 2014).
After 38 years from the first CMO wine and less than 10 years from the
reform 1493/99, a new CMO orientation identified by the author as orienta-
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tion no. 3 (phase 3) (Table 13.1) geared to increase the competitiveness of the

EU wine sector in a worldwide market and mainly against the growing of the
third producing countries. This orientation was characterized by intervention
linked to support the investments and innovation activities for the EU wine
enterprises on hand and support the promotion of quality wines in third
countries. These measures were introduced with the reform of 2008 (Reg.
479/2008). Analyses of these measures highlight a clear correlation between
wine support programs on the one hand and rural development interventions
(Pillar II of CAP) on the other. The EU firms cannot receive the support for
the same topic from two sources of financing. This is most probably due to
the nature of the measures themselves. For example, the investment measure
essentially covers the same scope as the rural development (investment aid
measures “modernization of agricultural holdings” and “adding value to agri-
culture and forestry products”). Furthermore, the obligation for the EU
Member States to draw the dividing line between CMO and rural develop-
ment has probably compromise the implementation of the investment mea-
sure. Here, different interests of wine lobby have probably played an important
role in the distribution of support within the EU Member States.
13.3 H
istorical Expenditure and Provisional
Distribution
The percentage of expenditures on the wine policy is represented in Fig. 13.1.
The period 1970–2015 covers all of policy implementation period. During
this time, orientation 1 price and income support represented the most impor-
tant spending between 1970 and 2015 (almost 70% of the total); 24% of the
total budget was designated for orientation 2 quality wines, and only 4% rep-
resented the amount for competitiveness (orientation 3).
In recent years, during the decade 2001–2010, half of the spending (47.5%
of the total) occurred to support quality interventions. This value increased in
the last six years of the decade while reaching 54.4% of the expenditure, fol-
lowed by 25.3% in competitiveness and 20.3% for the price and income
support.
Table 13.2 focuses on main expenditure cost line items in millions of euros
and % of the total budget. As shown in the table, the spending for the distil-
lation scheme was more than €9.60 billion in the period 1970–2015. Market
withdrawals of wine, as political consequences of distillations schemes, has
risen more than €6.6 billion in the same period. It represented more than
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one-third of all the wine budget costs used in 45 years (€45.027 billion). The
buying-in of alcohol from compulsory distillation amounts more than 9% of
the payments in the whole period with average cost around €1.5 billion (every
ten years), while the aid for concentrated grape must was around €3.5 billion
in 1970–2015 (7.8% of the total).
25.3 Competitiviness
2011-2015 54.4
20.3
Quality wines
2.7
2001-2010 47.5
49.9 Price and ncome support
0
1991-2000 20.2
79.8
0
1981-1990 1.9
98.1
0
1971-1980 1.7
98.3
4.3
1970-2015 24.1
71.6
0 20 40 60 80 100
Fig. 13.1 Policy orientations through the % of budget expenditure. (Source: Author’s
dataset (elaboration from EAGGF annual expenditures), 2015)
9. By-product
distillation
7%
1. Single
payments
scheme
12%
7. Investments in
enterprises 2. Promotion
23% 19%
3. Restructuring and
conversion
39%
Fig. 13.2 National Programme Support 2019–2023: % of budget. (Source: Financial

Report, European Commission—DG AGRI (https://ec.europa.eu/agriculture/sites/agri-
culture/files/wine/statistics/programming-2019-2023_en.pdf))
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According to the budget expenditure, almost 8.3% (€3.75 billion) of the

total EU wine expenditure (1970–2015) was designated to support the grub-
bing up/abandonment of vineyards. Restructuring of vineyards accounted for
13.7% of the total wine budget; €6.167 billion over the time 1970–2015 of
EU resources have been designated with a pick in decade 2001–2010 of €2.7
billion.
Looking at the distribution of subsidies for orientations 3 “competitive-
ness”, 12.6% of the budget (€851 million) was allocated from 2011 to 2015
for investments and innovation. Promotion in third country is the first largest
expenditure category: between 2001 and 2010, €122 million of EU funding
has been spent to subsidize promotion actions and almost €860 million
(12.7% of the budget) in the last six years. The main beneficiaries were the
appellation of origin (within the consortia organization) and the temporary
associations of businesses and the producer groupings. For the most part, the
resources were used by companies working in the US, Canada, China, and
Japan to strengthen the markets. The majority of projects concentrated on
joint participation in trade show events, contact with journalists from the
countries of origin, and training activities for operators in the sector.
The wine reform adopted in 2008 brought major changes to the system of
payments. With the CMO wine reform 479/2008, the CMO’s financial
resources were distributed via national envelope (National Programme
Support, NPS), by transfer from rural development measures (Pillar II, see
footnote 2). The regulation was based on measures that can be achieved
through NPS managed directly by the EU Member States and activates at
least one of the 11 measures.9 Their implementation was voluntary and was
left up to the individual Member State to decide. They are applied and man-
aged according to objective criteria and take into account the economic situ-
ation of the producers concerned, as well as the need to avoid unjustified
unequal treatment of producers (Gaeta and Corsinovi, 2014).
The financial distribution of each EU countries for national support mea-
sures is shown in Fig. 13.2. It highlights the latest percentage of financial
9
(1) Single payment scheme, (2) promotion in third countries, (3) restructuring and reconversion, (4)
green harvesting, (5) mutual funds, (6) harvest insurance, (7) investments, (8) use of concentrated grape
must, (9) by-product distillation, (10) potable alcohol distillation, and (11) crisis distillation. The first
nine measures were called definitive measures (2009–2013), which could be activated for the new CMO’s
entire programming period. The others (such as potable alcohol distillation, crisis distillation, and aid for
the use of must for enrichment or concentrated musts) could be used for a maximum of four years
(phasing-out measures) and are taken from the market support mechanisms provided for in the previous
CMO.
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scheme for the NPS programmed from 2019 to 2023. The 2013 CMO
reforms introduce as a new measure innovation in the wine sector aiming at
the development of new products, processes, and technologies concerning the
wine products. Furthermore it opens promotion measures to information in
Member States, with a view to informing consumers about the responsible
consumption of wine and about the Union systems covering designations of
origin and geographical indications. It also extends the restructuring and con-
version of vineyards to replanting of vineyards where that is necessary follow-
ing mandatory grubbing up for health or phytosanitary reasons. The regulation
provides for more streamlined national programs with only 9 eligible mea-
sures rather than 11 of the 2008 wine policy: (1) SPS; (2) promotion; (3)
restructuring and conversion (3) a, replanting of vineyards for health or phy-
tosanitary reasons); (4) green harvesting; (5) mutual funds; (6) harvest insur-
ance, (7) investments in enterprises; (8) Innovation; and (9) by-product
distillation.10 Looking at the distribution of funds, restructuring and vineyard
reconvention represent the largest share of the future wine policy followed by
the investments and promotion.
There can be no doubt that the move to eliminate and reduce the economic
funds to market measures was well intentioned after more than 30 years, as it
aimed to increase the efficiency and competitiveness of the European wine
sector. The hope was for a future where wine makers would produce for the
market and not for the distiller.
Who exactly had benefitted from these measures thus far? Undoubtedly,
those with the biggest interest in obtaining aid for distillation were large-scale
vineyards, which found themselves able to reallocate huge volumes of must
and wine that would otherwise be in excess of market demand. Thus, in an
anticompetitive manner, these aid payments rewarded those businesses not
controlling production variables, safe in the knowledge that community sub-
sidies would always be there.
During more than 45 years of wine reforms, both internal and interna-
tional measures described in the previous three different phases represent an
example of compromise between protectionist and liberalist policy, with obvi-
ously different effects on the market.
The new programs no longer contain potable alcohol distillation, crisis distillation, funds for grape
10
must, or funds for the use of concentrated grape must.
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13.4 The EU System of Wine Classification

The first EU regulation for quality wines was created in 1970 (Regulation
817/1970). Up until this point, quality wine was only regulated at member
state level and no EU rules existed. The first decrees were to be adopted by the
France government in 1935.11 Since the 1970s, the protection model for EU
quality wines is based on a pyramid-structured project that is becoming more
restrictive as they gradually move up the pyramid from the base to the peak
(Corsinovi and Gaeta 2015).
The bottom section contains undifferentiated products (Table wine [TW],
Vino da Tavola [Italy], Vin de Mesa [in Spain], or Vin de Table [in France]),
which have no link to their place of origin and are therefore subject to signifi-
cant legislative deregulation. Instead, they fall under generic legislation defin-
ing what the term “wine” means and how it should be marketed. The next tier
in the pyramid is represented by the category or “Indicazione Geografica
Tipica” (typical geographical indication, IGT). The production rules for these
wines contain some basic regulations: production area and grape origin, types
of vine that may be used, yield per grape/hectares (with a large range), and
chemical-physical and organoleptic characteristics (such as color and taste).
As we move up the pyramid and the production area is restricted, we find the
category of appellation wines (DOC, AOVDQ). Here, the prerequisite of
interaction, and therefore the relevant origin rules, plays a crucial role. The
limits of the production areas represent real walls between quality territory
and the undifferentiated world of production anarchy, which lies outside. A
place name is thus used to identify the wine and its characteristics, which are
in turn defined by the delimited geographic area and specific production cri-
teria, the so-called production rules. Moving further up, there is another cat-
egory represented by DOCG/AOC wines (controlled and guaranteed DO,
Appellation d’Origine Contrôlée). The DOCG/AOC were reserved for wines
already recognized DO for at least five years and are deemed to be of particu-
lar value. The DOCG/AOC are usually connected to a smaller area of produc-
tion and more stringent rules. The top of the pyramid is made up of another
peculiar aspect: subareas. These are more restricted areas within the appella-
tion, with even more restrictive independent production rules and parame-
ters. They are mentioned on the label and assume a homogeneous product,
Among the wine literature, the political economy mechanism that created the existing set of European
11
quality wine regulations is shown by Meloni and Swinnen (2013) and Gaeta and Corsinovi (2014); while
other authors develop a political economy model of the size of geographical indications (Moschini et al.
2008; Deconinck and Swinnen 2014).
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distinctive of the wider area. This is closely connected to the terroir as specific
soils have a certain physical homogeneity, meaning that the nature of the soil
can pass on a particular characteristic to its produce, notably to wine (Josling
2006). This term may thus be defined as the terroir, the place of production,
and more specifically it is often used to indicate a specific name or legally
defined vineyard and the vines that grow on that terroir. An example, or per-
haps a model, of this is the French term cru. In reality, the stronger the link
with the area of origin is, the richer the system is in terms of legislative speci-
fications and production restrictions. Many restrictions are also imposed by
producers’ organizations or consortia in the production protocols such as pro-
hibition of bottling the wine outside the geographical production area (e.g.
Rioja; Chianti Classico, etc.); many wines cannot be exported in bulk
(Corsinovi and Gaeta 2015). From 2008, the EU law for quality wine consists
of two types of classification: (1) Protected Denomination of Origin (PDO)
regarding quality wines produced in a specified region and (2) Protected
Geographical Indication (PGI) regarding quality wines with geographical indi-
cation. PDO and PGI refer to the geographical names and qualifiers corre-
sponding to the regions of production, used to designate the wines referred to
in regulations, whose characteristics depend on the natural conditions, cor-
related to its viticulture characteristics (Gaeta and Corsinovi 2014).
13.4.1 The International Debate and the Role of WTO
The new EU wine regulations are largely inspired by the legislation applying
to agricultural products and foodstuffs. At the international level, GIs are
legally provided for by the WTO Agreement on Trade-Related Aspect of
Intellectual Property rights (TRIPS).
In recent years the EU has held several bilateral negotiations for free trade
agreements with third countries with the aims on one hand to reduce tariff
and duties and open new markets and increase sales in both developed and
emerging markets and provide on the other hand for the protection and rec-
ognition of specific quality production (Cogeca 2014).
Since 1994, the EU has developed specific agreements for protection of GIs
for wines and spirits with other key producing countries, beginning with
Australia (1994, renewed 2008), Chile (2002), South Africa (2002), Canada
(2003), and the USA (2006, updated 2011).12 However, such initiative has
12
DG AGRI Working Document on international protection of GIs: objectives, outcomes, and chal-
lenges, 25 June 2012.
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not made much progress due to opposition, in particular, from the USA,
Australia, Chile, New Zealand, Argentina, Canada, and Japan. Until the
TRIPS agreement will not offer adequate protection for European GIs, the
EU is seeking this objective through different types of bilateral agreements
(Cogeca 2014).
The EU wine sector has consolidated its market share in the last ten years
as a first market destination for the top five EU wine-producing countries
(Italy, France, Spain, and Portugal). The USA plays a key role for the EU wine
business firms as the first market destination outside Europe in terms of value
and volume (OIV 2016).
For these reasons the EU-US trade agreement—Transatlantic Trade and
Investment Partnership (TTIP)—has taken on an important role among the
EU trade policy. However, after three years of negotiation and with the new
US President from November 2016, the negotiation seems to be far removed
from to the final agreement. Its objective sought by policymakers is to remove
trade barriers (tariffs, unnecessary regulation, restrictions on investment, etc.)
to a wide range of economic sectors, including agriculture, in order to make
it easier to buy and sell goods and services between the two partners. Rickard
et al. (2014) have analyzed the impacts of the proposed EU-US free trade
agreement on wine markets. They develop parameters to characterize the
effects of tariffs and domestic regulations that affect production and con-
sumption of wine between EU and the USA. The authors “show that reduc-
tions in tariffs would have relatively small effects in these wine markets,
whereas reductions in EU domestic policies that affect wine grape production
would have much larger trade and welfare implications”.
The 2006 agreement between the EU and the USA on the marketing of
wine did not resolve the issue and did not venture into who, prior to it being
stipulated, had the possibility of using names, which at that point were con-
sidered to be “semi-generic” and were then promoted to “generic”. As a con-
sequence of this, American producers who in the past had marketed their
wine under the names in question (such as Californian Chianti) could con-
tinue to do so. Looking back at where this all started, two important points
arise.
The first is linked to the American classification system. The second is
linked to the incomplete nature of the TRIPS agreement.
In relation to the first of these points as regards the American Classification
system, the US Department of the Treasury, which is responsible for the
Alcohol and Tobacco Tax and Trade Bureau (TTB) under the section of the
Code of Federal Regulations (CFR) on labeling and promotion of wine prod-
ucts, created a classification system for geographically relevant symbols.
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These symbols were then subdivided into “generic”, “semi-generic”, and

“non-generic” and those corresponding to geographical designations.
The problem here lies in which category the symbol belongs to, as the level
of protection available for the relevant DO in the USA varies depending on
the category. This means that if a name is classified as generic (e.g. vermouth13),
then it is not awarded any protection in the USA. The semi-generic category
contains names with a geographical significance and which also specify a cat-
egory of product, such as Burgundy, Champagne, Chianti, Malaga, Marsala,
Madeira, Porto, Sauternes, and Sherry. According to US law, semi-generic
names may be used as long as the true American origin of the wine is clearly
declared to the consumer and the wine is in line with the quality standards
laid down by the CFR.
The Internal Revenue Code defines each semi-generic name “as a name of
geographic significance that is also a designation of class and type for wine.
The IRC further states that a semi-generic name may be used to designate
wine of an origin other than that indicated by its name only if there appears,
in direct conjunction with the designation, an appropriate appellation of ori-
gin disclosing the true place of origin and the wine so designated conforms to
the standard of identity.”
This makes it possible to designate geographical names, such as Californian
Chianti or New York Champagne, as the semi-generic name is accompanied
by another designation of provenance (California, Napa Valley, New York,
etc.) corresponding to the effective place of production. The USA justifies this
by stating that this combination enables the American consumer to recognize
where the wine comes from and how it is different to French Champagne or
Chianti produced in Tuscany. However, names with a geographical signifi-
cance belong to the non-generic category.
The prerequisite of recognition is paradoxically linked to the consumer
protection.
US legislation recognizes the protection of a generic name if it is decided
that at the point of purchase the consumer is capable of associating the wine
with the geographical territory referred to in the name.14 This means that
names such as Bordeaux and Médoc are considered to be non-generic as the
13
Vermouth is a type of aperitif wine compounded from grape wine, having the taste, aroma, and charac-
teristics generally attributed to vermouth and shall be so designated.
14
It should be specified that when the first European pioneer from the “old country” made wine in
California from Vitis vinifera grapes that looked, smelled, and tasted like what they knew at home, they
called it by old country names. By the early 1880s, names like Champagne, Burgundy, and so on were
commonly used to describe wine similar to those grown in France (Muscatine et al. 1984).
mmorag@uchile.cl
origin on the product is clearly identified by the US consumer. It is easy to

understand how the interaction between vine variety, territory, and produc-
tion method, which is so important to European wine production, is not
interpreted in the same way in the USA, where the reputation of a wine is
mainly determined by the private brand (Appiano and Dindo 2007). It is
therefore of little surprise that the majority of European DOs register their
own brand as a trademark as well as the designation (collective brand).
The USA considered a trademark as “a word, phrase, or logo that identifies
the source of goods or services” with the aims to allow consumers to “easily
identify the producers of goods and services and avoid confusion”. Trademark
law protects on one hand and discourages on the other hand the businesses
from adopting a name or logo that is “confusingly similar” to an existing
trademark. This system generates a lot of confusion assimilating the trade-
mark with GIs. A trademark can be assigned or licensed to anyone, anywhere
in the world, because it is linked to a specific company and not to a particular
place. Geographical Indications may be used by any persons, who produce the
good according to specified standards only; if it is in the area of origin, a GI
cannot be assigned or licensed to someone outside that place or not belonging
to the group of authorized producers.
The second point arises due to the incomplete nature of the TRIPS agree-
ment and the legislative gap which exists due to the incomplete nature (or
perhaps carelessness) of the WTO TRIPS agreement, which introduced the
issues relating to intellectual property rights (including geographical indica-
tions) and which was also accepted by the USA.
The key points can be found in article 22 of TRIPS on protection of geo-
graphical indications, article 23 on additional protection of geographical indi-
cations for wine and alcoholic drinks, and article 24 on international
negotiations. The agreement in fact recognizes the link between product and
territory in an indication or origin, but the human factor and the link with
the place of origin are not included. Moreover, article 23 bans the registration
of a brand representing wines with a GI when the origin stated is not the true
origin of the product. In the case of homonymous geographical indications
for wines, protection is accorded to each indication (article 23(3)). Article
23(4) states that “In order to facilitate the protection of geographical indica-
tions for wines, negotiations shall be undertaken in the Council for TRIPS
concerning the establishment of a multilateral system of notification and reg-
istration of geographical indications for wines eligible for protection in those
Members participating in the system”.
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13.4.2 T
he Protection of Traditional Wine Terms
and Their Origins
The system described above has never been launched, and as the interpreta-
tion of the standards is done on the basis of national decisions, this has been
the outcome. One the one hand, EU is calling for more protection for wines,
and on the other, the USA is using strong arm tactics. It is precisely the pro-
tection of traditional terms that is an important issue being discussed in
Brussels’ European quarter and US wine departments. They are well and truly
a characteristic specific to the wine sector. They provide (or perhaps “should
provide”) protection to certain designations traditionally associated with spe-
cific wines bearing a designation or indication of origin (Table 13.3). These
terms are particularly complex as they face many problems and are of interest
to a broad range of political actors (Member States and EU and non-EU wine
organizations).
At EU level, two different types of traditional terms are included in the
CMO. The first type is used for PDO or PGI. The second type is used for
production or aging methods, quality, color, type of place, or for a particular
event linked to the history of the product with a PDO or PGI. In addition to
this, all terms and all new information connected to the protection of tradi-
tional terms are entered and updated in the EU’s E-Bacchus database.15
Traditional terms do not however constitute intellectual and industrial prop-
erty rights like PDO and PGI but instead refer to production, processing, or
aging details or to the quality, color, and type of place included and recog-
nized on the label. In order to avoid discrimination between wines originating
in the Union and those imported from third countries, terms traditionally
used in third countries may obtain recognition and protection as traditional
terms in the Union also where they are in conjunction with GIs and DOs
regulated by those third countries.
In order to be able to use EU traditional terms (TTs) on the community
market (see Table 13.3, bearing in mind that these terms include Riserva,
Brunello, Amarone, Vin Santo, Château, Torcolato, and Governo all’uso toscano),
third countries must demonstrate that the traditional terms in question are
regulated by applicable standards, including those laid down by representative
15
The E-Bacchus database is the register of EU PDOs and PGIs protected under the single CMO. This
includes the list of GIs and DOs for third countries protected in the EU following the implementation
of bilateral agreements on trade in wine and signed between the EU and the third countries concerned.
E-Bacchus also includes the list of traditional terms protected in the EU under the single CMO
Regulation.
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Table 13.3 The main traditional terms as referred to EU Reg. 607/2009

Historical
Place of Production and Quality wine
States origin aging method characteristics typology Color
Italy Classico Cannellino; Fine Riserva; Amarone; Ambra;
Superiore; Cerasuolo; Ambrato;
Vendemmia Garibaldi Claret;
Tardiva Dolce (or Chiaretto
GD);
Recioto;
Sangue di
Giuda;
Sciacchetrà;
Soleras;
Torcolato
Governo all’uso Vermiglio Vin Santo or Fiori
toscano Vino Santo d’Arancio;
Rubino
Occhio di Oro
Pernice
Passito or Vino
passito
Liquoroso
Rebola; Scelto,
Stravecchio;
Superiore
Oldo Marsala;
Torchiato;
Vecchio;
Verdolino;
Vergine; Vino
Fiore; Vino
Novello or
Novello;
Vivace
France Château, Vin jaune; Hors Cru artisan Ambré;
Clos d’âge; Rancio Clairet;
Sélection de Cru bourgeois Caret
grains nobles
Sur lie Cru classé, whether or not
supplemented by Grand,
Premier
Vendanges Grand, Deuxième, Troisième
tardives
Vin de paille Quatrième; Cinquième; Grand
cru;
Villages
(continued)
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Historical
Place of Production and Quality wine
States origin aging method characteristics typology Color
Spain Añejo; Chacolí- Amontillado; Dorado
Txakolina; Fino; Superior
Clásico
Criaderas y
Solera;
Crianza;
Fondillón;
Pajarete;
Pálido; Solera;
Sobremadre
Gran Reserve;
Lágrima;
Noble;
Oloroso; Vino
Maestro
Vendimia Inicial;
Vino de Tea
Portugal Canteiro; Fino; Superior; Escuro;
Frasqueira; Super Reserva; Ruby
Garrafeira; Reserva velha
Nobre; Solera; (ou grande
Leve; Làgrima reserva);
Vintage
Source: Author’s creation from E-Bacchus database (2015) and EU Regulation
607/2009
professional organizations from the third country; that the terms enjoy a good
reputation within the third country; that the terms have been used tradition-
ally for at least ten years in the third country; and that the third country’s
regulations are clear enough so as not to mislead the consumer about the term
in question. Many of these terms relate to famous wine countries or place or
particular expressions. Table 13.3 tried to divide the main traditional terms
according to their main characteristics like place of origin, production method
and aging method, quality characteristics, historical wine typology, and color:
Many of them identify both the quality characteristics that historical typol-
ogy. For example, in France the traditional term “Château” refers to the
historical expression related to a type of area and to a type of wine and is
reserved to wines coming from an estate which really exists or which is called
exactly by this word. “Cru artisan” and “bourgeois” are expressions related
to the quality of a wine, to its history, and to a type of area evoking a hierar-
chy of merit between wines coming from a specific estate (PDO “Médoc”,
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“Haut-Médoc”, “Margaux”, “Moulis”, “Listrac”, “Saint-Julien”, “Pauillac”,

“Saint-Estèphe”). Traditional terms (TTs) like Premier and Grand Cru are
expressions related to the quality of a wine but also are historical terms,
reserved to wines with protected designations of origin defined by decree
and when a collective use is made of this expression by incorporation to a
designation of origin.
The right to use traditional terms is accorded to third countries subject to
an evaluation carried out by the Commission and Member States of the
requests submitted in this regard and only if all conditions have been met. The
final condition for non-EU wines using terms recognized in Europe for
European wines is that the product’s importation to the EU must be preceded
by a request from the non-EU country including the reason for the request
and the information to justify the recognition of the terms (Appiano and
Dindo 2007). Using a language other than the language spoken in the export-
ing country is permitted only if the use of such a language is provided for
under national legislation and if the same language has been consistently used
for the term in question for at least 25 years. The origin of the issue surround-
ing this lobbying case is twofold. Firstly, the EU has 359 traditional terms,
100 of which are synonyms of PDOs or GPIs (like Vino de la Tierra in Spain,
Appellation d’Origine Controlée in France, and DOC or DOCG in Italy) and
259 of which are traditional terms that describe the quality of wine or particu-
lar production process. In Italy, for example, less than 58 traditional terms
have been identified, but the term “Reserve” is present in 212 Italian PDOs,
and the term “Novello” is in 187. In addition to these, there are also the terms
“Sweet Wine”, “Sweet Wine Fortified—Liquoroso”, “Ripasso”, and “Recioto”.
Secondly, the Commission is evaluating the changes to the standards for tra-
ditional terms with the aim of reducing their number in order to assure their
protection at international level. Therefore, it intends to create two additional
criteria to increase their validity. The first of these criteria relates to the distinc-
tive characteristic of the traditional terms according to which general and
non-specific terms could not be protected. The second criteria states that if a
term is homonymous with a PDO/PGI or with a variety, then the Commission
can automatically refuse it protection.
At the request of wine-producing countries, EU has always defended itself
by stating that the conditions imposed on third countries for the use of tradi-
tional terms are a guarantee against possible abuse. It was made all the more
difficult when the United States Trade Representative (USTR), the US gov-
ernment agency for development and control of trade policy, in the EU sec-
tion of its 2013 Report on Technical Barriers to Trade strongly criticized the
limits placed on the use of certain traditional terms on product labels. The
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USTR stated that EU regulations on the use of terms such as Riserva, Rubino,
Chateau, and Tawny restrict the ability of non-EU wine producers to use
these terms on their wines sold in Europe: terms which the USTR considers
to be common, descriptive, and commercially valuable.
It can be argued that rules for wine may acquire or lose relevance depend-
ing on the economic importance of other sectors covered by the agreements,
as trade-offs between different types of traded goods (or services) are likely to
occur.
Is it really a problem of international competition and protection for the
European wine sector, or is it more a political and therefore lobbying debate?
13.5 Final Remarks

The EU wine sector has been characterized for decades by interventions linked
to the income and price support. Covering the history of the wine CMO, we
can identify three policy orientations.
The first orientation strategy (no. 1) is identified as price and income support
program where most of the interventions were addressed to help and stabilize
the income of the wine producers and defend the internal market of the EU.
Orientation 1 has dominated the scene for more than 30 years. It represents
the largest category of expenditure in the 1970/2015: more than 70% of the
total.
CMO policies should have encouraged the wine sector to bring supply into
line with demand in terms of both quantity and quality (EU Commission
2002). As a consequence, the EU recognized the need to adopt more quality
wines and consumer-oriented approach to production and development of
quality policies (orientation 2). The scenario of orientation 2 was imagined to
develop the quality of wine trough rules designed to address the management
of production potential: from 1976 introducing the ban on new planting, the
planting rights system. This orientation has represented the 24% of the total
financial expenditures.
The hope was for a future where wine makers would produce for the mar-
ket and not for the distiller. Describing the possible new strategy is a very
complex task. However, the last 15 years have shown an increase in the per-
centage allocated to the second and third orientations. During the decade
2001–2010, half of the expenditure (47% of the total—8 billion) was spent
to support the quality interventions. This value increased in the last six years,
reaching 54% of the expenditure, followed by 25% in competitiveness and
20% for the price and income support. An opposite trend: maybe something
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is changing. There can be no doubt after more than 30 years that the move to
eliminate and reduce economic funds to market measures, like distillation,
and which we called phase one, was well intentioned; it aimed to increase the
efficiency and competitiveness of the European wine sector. This move may
have been too late, with millions of euros thrown in the garbage basket of a
privileged lobby made of cooperatives and farmers who survived without a
real market and only with the holy help of their deputies in the EU Parliament
in phase one.
There is no doubt also that a concrete forward step in international com-
petitiveness was brought through quality policies that increased and fortified,
with PDO and PGI production, the characteristics of the EU quality wine
personality in the world market.
The EU is still moving from the administration of protection—quotas,
tariffs, and subsidies—to the administration of precaution: security, safety,
health, and environmental sustainability. This is the new version of the old
divide between tariff and non-tariff barriers.
In summarizing the best and worst EU wine decisions, special evaluation of
the EU international wine policy should be undertaken. Every phase described
shows that it is still concerned with a strong protective action, both through
tariff and non-tariff measures. International free trade agreements slowly keep
on entertaining Brussels’ bureaucrats without reaching a final agreement.
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mmorag@uchile.cl
14
Barriers to Wine Trade
Angela Mariani and Eugenio Pomarici
14.1 Introduction
Wine has traditionally been traded goods, but only in the past two decades,
the international wine trade has experienced a considerable growth: in the
1960s the exported share of global wine production was 10% and in 1990
this share had reached only 15%. However, by the year 2000 exported pro-
duction had reached 25% of global production and more than 35% in 2017.
More in detail, wine exports were in 2000 about 60 million hectoliters and 17
years later they are higher than 100 million hectoliters. This extraordinary
growth suggests that the international wine trade was rather free to expand,
without relevant hindrances; indeed, in 2010 the share of export from coun-
tries outside regional integrated areas was 60% in value and 52% in volume,
with a 6-year increase of about 6 percentage points (in value and volume)
(Mariani et al. 2014a).
Nevertheless, the international wine trade, like any other trade, is influ-
enced by barriers which, even though they have not prevented the growth of
A. Mariani (*)
Department of Economic and Legal Studies, University of Naples “Parthenope”,
Naples, Italy
e-mail: mariani@uniparthenope.it
E. Pomarici
Padua, Italy
e-mail: eugenio.pomarici@unipd.it

https://doi.org/10.1007/978-3-319-98633-3_14
mmorag@uchile.cl
292 A. Mariani and E. Pomarici
wine export, have probably contributed to the openness of the different

importing markets and to the competitive gaps among exporters, which have
driven the complex evolution of international wine flows over last 40 years
(Mariani et al. 2012; Morrison and Rabellotti 2017). It is likely that such gaps
have derived from a different capacity to lower such barriers in a preferential
manner. The understanding of which the trade barriers are and how they
operate in the wine markets may, therefore, offer an interesting contribution
to understanding how this market evolved over time and to anticipating how
it could progress in the future.
Trade barriers result from customs tariffs, the so-called tariff barriers, or
from policy measures that can potentially have an economic effect on interna-
tional trade in goods, changing quantities traded, or prices or both, the so-
called non-tariff measures (NTMs) (UNCTAD 2013). According to
UNCTAD NTMs may be classified in technical measures, non-technical
measures, and export measures.
In the context of a book which has the objective to present the structure of
the global wine market, this chapter aims to offer an updated and comprehen-
sive picture of how tariff barriers and NTMs contribute to the definition of
the institutional setting of this market. This is done on the base of official
documents and reports and of the scientific studies stimulated by the rise of
the international wine trade.
This chapter is organized as follows: in Sect. 14.2 the tariff barriers operat-
ing in the wine market are discussed and an assessment of the impact of such
barriers on the wine export flows is introduced; in Sect. 14.3 a general over-
view of NTMs is offered, showing how these operate as barriers in the wine
sector; in Sect. 14.4 an analysis is done on technical measures, which are the
NTMs more frequently resulting in trade barriers; in Sect. 14.5 it is shown
how exporting and importing countries reduce the wine trade’s barriers; and,
in Sect. 14.6, the events and processes which could modify trade barriers sta-
tus in the wine market over the near future are presented. Some final remarks,
in Sect. 14.7, conclude the chapter.
14.2 Tariff Barriers

Tariffs are the most visible trade barrier: they cause an increase in import
prices and reduce economic welfare for both wine consumers in the import-
ing countries and wine exporters (Dunn and Mutti 2004). The level of tariffs
is constrained by the World Trade Organization (WTO) rules: all members
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Barriers to Wine Trade 293
Table 14.1 Types of tariffs in the international wine trade

Type of
tariff Description and examples
Ad One rate or different rates according to the import price of the product
valorem India, 150%; Nigeria, 30%; Argentina, 20%
Volume A single rate specified by volume unit (liter)
based Bermuda: US $2.63 per liter
Alcohol One rate or different rates according to alcoholic strength
content Norway: NOK 4.31 (€0.51) per percent volume of alcohol per liter
based
Container Different rates according to the packaging of wine (bottled or bulk)
based Brazil: 27 % for bottled wine and 20% for bulk wine
China: 14% bottled wine and 20% bulk wine
Wine type Different rates according to the type of wine (still or sparkling)
based Malaysia: MYR 7 (€1.56) per liter for non-sparkling wine and MYR 23
(€5.13) per liter for sparkling wine
Mixed Ukraine: €0.3 per liter for still bottled wine, €0.4 per liter for bulk wine,
and €1.5 per liter for sparkling wine (volume based by type of wine
and container)
Taiwan: still wine 10%, sparkling wine 20% (ad valorem by type of
wine) Japan: 15%—up to a maximum of Yen 125 (€0.88) per liter but
with a minimum customs duty of YEN 67 (€0.47) per liter—for bottled
wine, YEN 45 (€0.32) per liter; for bulk wine, YEN 112 (€0.79) per liter;
for fortified wines, YEN 182 (€1.28) per liter for sparkling wines
are committed to set tariffs at levels (most-favored-nation tariff) above which

they cannot be raised any more without compensation to the other countries.
Currently the WTO-bound tariffs are the result of the Uruguay Round, seen
that the new negotiations, the Doha Round, were considered unsuccessful in
2015 (Financial Times 2015). Applied tariffs may be (and usually are) lower
than the bounds, since tariffs may be reduced or cleared in the framework of
preferential agreements.
Tariffs on wine may be defined in various ways, as wine is a much differen-
tiated product and may be traded in different container types. Therefore,
depending on the importing countries, tariffs on wine could be expressed as
ad valorem, with one rate or different rates according to the price level of the
product; specifically volume based (per liter); specifically alcohol based (alco-
holic strength); and a mix of ad valorem and specific rates. In addition, tariffs
can differ by the type of wine (still bottled or bulk, sparkling wine). Specific
tariffs based on volume are the most popular in Europe and North America,
whereas ad valorem tariffs are the norm in the Asia-Pacific region, with the
exception of Japan and Malaysia (Anderson 2010). Table 14.1 shows some
examples of tariffs on wine imports.
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Table 14.2 EU most favored nations import duties

MFN import duties on wine € per liter
Bottled still wine, < 13% alc. 0.154
Bottled still wine, 13–15% alc. 0.181
Bottled still wine, 15–18% alc. 0.219
Bulk still wine, < 13% alc. 0.116
Bulk still wine, 13–15% alc. 0.142
Bulk still wine, 15–18% alc. 0.181
Sparkling wine 0.375
Source: Our elaboration
Due to the presence of specific tariffs, evaluating and comparing the level
of market protection for wine require complex estimates and specific tariffs
should be transformed into the so-called ad valorem equivalent (Babili 2009).1
Overall, tariff protection is quite low in countries which have long been
involved in the wine trade such as the European Union (EU), the USA,
Canada, Australia, and New Zealand (with the notable exception of Japan).
By contrast, the tariff level is high in countries which have recently experi-
enced growing wine imports, that is, mainly Asian markets (Anderson 2010;
Anderson and Nelgen 2011).
Table 14.2 shows the import duties defined according to the principle of
most favored nations for EU. The highest is that applied to sparkling wine,
€0.37/liter, while the lowest, which would be applied to low alcohol bulk
wine, is only €0, 12/liter.
All in all, the impact of tariff barriers on the international wine trade is
rather small, but not negligible. Anderson and Wittwer (2018) simulated
changes in the global wine flows (production, consumption, international
trade) from 2014 to 2015 under various scenarios; in the scenario in which all
import tariffs on wine were to be removed multilaterally, the value of world
wine trade would be 7% greater in 2025 compared to a baseline solution
which includes the likely effect of the UK leaving the EU.
14.3 N
on-tariff Measures as Trade Barriers:
An Overview
A wide and heterogeneous range of policy interventions other than border
tariffs could affect trade costs incurred from producers to final consumer and/
or alter conditions of international trade, including policies and regulations
According to the WTO rules, tariffs should be ad valorem.

1
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Table 14.3 Non-tariff measures classification

Import: technical measures
A Sanitary and phyto-sanitary measures
B Technical barriers to trade
C Pre-shipment inspection and other formalities
Import: non-technical measures
D Contingent trade-protective measures
E Non-automatic licensing, quotas, prohibitions, and quantity-control measures
other than for SPS or TBT reasons
F Price-control measures, including additional taxes and charges
G Finance measures
H Measures affecting competition
I Trade-related investment measures
J Distribution restrictions
K Restrictions on post-sales services
L Subsidies (excluding export subsidies under P7)
M Government procurement restrictions
N Intellectual property
O Rules of origin
Export
P Export-related measures
Source: UNCTAD (2013)
that restrict trade and those that facilitate it. NTMs have the potential to
distort international trade, whether their trade effects are protectionist or not,
and could be applied to imported and exported goods.
For practical purposes, as shown in Table 14.3, NTMs have been catego-
rized by UNCTAD depending on their scope and/or design in 16 chapters (A
to P), with each individual chapter divided into groupings with up to three
layers of subcategories (UNCTAD 2013). The last chapter includes all the
relevant export measures. While the import measures are broadly distin-
guished as:
–– Technical measures (sanitary and phyto-sanitary measures, technical barriers

to trade and pre-shipment inspections) that could serve a legitimate pur-
pose as they are put into place for valid concerns such as food safety and
environmental protection
–– Non-technical measures, some of those are manifestly employed as instru-
ments of commercial policy (e.g. quotas, subsidies, trade defense measures,
and export restrictions)
The WTO provides guidelines for the application of NTMs. Overall, focus-
ing on the import measures, the WTO rules indicate that they must be trans-
parent, not overly restrictive to trade or applied arbitrarily. These rules help
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distinguish legitimate policy regulations and procedures from protectionist

measures that may impede trade. In other word, a NTM may be WTO-
inconsistent and act as a barrier to trade.
With regard to the wine trade, as well as for all agricultural and food prod-
ucts, sanitary and phyto-sanitary measures (SPSs) and technical barriers to
trade (TBTs) are considered those of major concern (Disdier et al. 2007; for a
review UNCTAD 2013), and they will be discussed in the next section.
Among the other NTMs, it is worth mentioning for wine, under category
F, the internal taxes and charges levied on imports (that have domestic equiva-
lent)—such as consumption taxes (value-added tax [VAT]), excise taxes, and
taxes or charges for sensitive products categories (such as tax on packaging for
environmental purposes).
Internal taxes on wine are quite different among countries worldwide, as
they are implemented for several different aims, such as protectionism of
locally produced alcoholic drinks (beer, spirits, etc.), prevention of alcohol-
ism, or environmental reasons (taxation on recycling).
In theory, the level of internal taxes should not generate competitive advan-
tages for wines of different origin and type, as it should only have an effect on
the demand size and growth, especially in the lower-income segments of the
population, even if for the higher income segments who consider wine as a
“status symbol” the opposite may be true (in accordance to Veblen effect, wine
demand grows with increasing consumer prices).
In fact, with reference to excise taxes, as they could be implemented in dif-
ferent way (i.e. on volume or on value), the picture is more complex and a
competitive advantage could result for certain types of wine. In countries
where the excise is applied to volume unit, its incidence is higher for low-
priced wines (compared to high-priced/quality wines). Therefore, in these
countries the market for low-priced/quality wines could shrink, and both
exporters and consumers (low-income segments) of this wine are penalized.
According to the estimate by COGEA (2014), considering the main
wine-importing countries, excise duty on volume are particularly high in
Singapore, Norway, Australia, and the UK. In contrast, excise duties are on
value in China and are not applied in countries such as Hong Kong and
Germany. When considering VAT Denmark and Norway apply the highest
rate, compared to Japan, the USA, and Singapore, where rates are relatively
low (zero in Hong Kong). Finally, Norway and Denmark have imple-
mented a tax on packaging, differentiating respectively in accordance to the
type of packaging (bottles or bag-in-box) or the volume (increasing with cl
volume).
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Finally, it is worth mentioning that other measures such as state trade

enterprise (under category H—measures affecting competition) and restric-
tion on resellers (under category J—distribution restrictions) could affect
internal market growth, price, and product availability. In some countries like
Finland, Norway, Sweden, and Canada, retail sale on wine and liquor is
restricted to government-controlled monopoly. Within the monopoly, a pro-
curement board identifies importers and wholesalers for products on the basis
of quality, ability to deliver, and price.
In particular, Canada operates under a system of provincial government-
controlled liquor control boards (LCBs), and the operation of these monopo-
lies differs from province to province. These LCBs have been contested by the
USA as they frequently provide direct and indirect subsidies to Canadian
producers. As a matter of fact, British Columbia and Ontario regulations
favor the sale of domestic wine by providing additional retail locations, includ-
ing farmers’ markets and dedicated areas in grocery stores (Wine Institute
2015).
In the USA, there exist two types of state-specific regulations, some even
county- or municipality-specific, that are widely considered to be responsible
for the demand in domestic and imported wine. The first set of regulations
affects the retail availability of alcoholic beverages (whether grocery stores are
allowed to sell alcoholic beverages). The second set of regulations affects the
distribution—in particular, interstate sales of wine (Rickard et al. 2017).
14.4 F ocus on Main Technical Measures (SPS

and TBT)
The most pervasive technical measures affecting wine trade are related to cat-
egories A and B, that is, the TBTs and the SPSs. SPS and TBT measures are
comprehensive of a wide array of regulations which are different by scope and
vary considerably by type (Table 14.4). SPSs include regulations and restric-
tions to protect human, animal, or plant life or health. TBTs address all other
technical regulations, standards, and conformity assessment procedures
imposed with a non-trade objective (i.e. to ensure safety, quality, and environ-
mental protection, etc.).
Regardless of whether they are imposed (or implemented) with protection-
ist intent or to address legitimate market failures, those measures can affect
trade, hindering market access or causing an increase in costs and time lost.
In this contest the measures which concern most the wine trade, according
to the literature, are the following (Wine Institute 2013, 2015; WFA 2010,
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Table 14.4 Import measures: technical measures

A—Sanitary and A1 Prohibitions/restrictions of imports for SPS reasons
phyto-sanitary A2 Tolerance limits for residues and restricted use of substances
measures A3 Labeling, marking, and packaging requirements
A4 Hygienic requirements
A5 Post-harvest treatment
A6 Other requirements on production or post-production
processes
A8 Conformity assessment related to SPS
A9 SPS measures, n.e.s.
B—Technical B1 Prohibitions/restrictions of imports for objectives set out in
barriers to trade the TBT Agreement
B2 Tolerance limits for residues and restricted use of substances
B3 Labeling, marking, and packaging requirements
B4 Production or post-production requirements
B6 Product identity requirement
B7 Product-quality or product-performance requirement
B8 Conformity assessment related to TBT
B9 TBT measures, n.e.s.
C—Pre-shipment C1 Pre-shipment inspection
inspection and C2 Direct consignment requirement
other formalities C3 Requirement to pass through specific port of customs
C4 Import-monitoring and import-surveillance requirements
and other automatic licensing measures
C9 Other formalities, n.e.s.
Source: UNCTAD (2013)
2018; European Commission 2016; USTR 2018; ICE 2010; Battaglene and
Milton 2010; Battaglene 2014):
–– Maximum residue limits of agrichemicals—differing between countries

both in level and for approved use on products.
–– Oenological practices—in many countries wine production is regulated by
oenological rules. This means that it is possible to produce wine using a
country-specific set of practices and substances compared to what should
be allowed by the Codex Alimentarius.
–– Certification and testing procedures—to access the markets, many import-
ing countries require a complex set of certificates and certification forms,
which may not always be justified by the intention of protecting people’s
health. Such certification requires considerable effort, resulting in an
increase in costs and time lost.
–– Wine labeling regulations—this is an issue of growing concern due to the
lack of consistency in standards between countries. As different health
warnings and list of ingredients are required, producing a label unique to
each country adds a significant additional cost to wine exporters.
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14.4.1 WTO Regulation: SPS and TBT Agreements
SPS measures and TBTs are subject to WTO regulation under two agree-
ments: the Agreement on Technical Barriers to Trade and the Agreement on
Sanitary and Phyto-Sanitary Measures. In brief:
–– Sanitary and Phyto-Sanitary Measures Agreement provides rules on how

governments can apply food safety and animal and plant health measures.
It applies to essentially all measures taken by WTO members to protect
human, animal, or plant life or health from certain risks within its territory
and which may affect international trade. In seeking to protect health,
WTO members must not apply sanitary or phyto-sanitary measures that
are unnecessary, not science-based, and arbitrary or which constitute a dis-
guised restriction on international trade.
–– Agreement on Technical Barriers to Trade is designed to ensure that techni-
cal regulations and conformity assessment procedures (testing and certifi-
cation) do not create unnecessary obstacles to trade.
The main principles behind the regulation of such agreements are summa-
rized in Table 14.5 (WTO 2010, 2014).
Implementation of WTO regulations has given rise to some critical issues
for the wine trade. The main issue is that few standards have so far been defined
by the Codex Alimentarius, recognized by the WTO as a standard-setting orga-
nization while the International Organisation of Vine and Wine (OIV),
though an intergovernmental organization committed to establishing techni-
cal and commercial standards for wine, is not recognized by the WTO.2
It should be noted that the problem of non-tariff barriers could further
intensify as some new fast-growing wine-importing countries are setting up
wine market regulations. Furthermore, in some of these countries (including
China, India, and Brazil), growing interest in domestic wine production could
lead to maintaining (or raising) protectionist policies and stepping up support
for local producers.
14.4.2 Plurilateral Initiatives
WTO principles of equivalence and mutual acceptance of rules have been

successfully applied by the World Wine Trade Group (WWTG) to ensure an
The OIV has applied to become observer at the WTO but the request has not yet been discussed.
2
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Table 14.5 Key elements in SPS and TBT agreements
South
300
EU USA Canada Others in America R-K-B GCC China (#) India Japan Korea AFTA
EU WA WA FTA (Mexico) N FTA FTA N (Singapore,
Malaysia, Vietnam,
Thailand, Philippines,
Indonesia, Myanmar)
USA WA FTA FTA (Mexico-NAFTA) FTA
(NAFTA) FTA (Peru, Colombia,
Panama, and
CAFTA-DR)
Chile FTA FTA FTA FTA (MERCOSUR) FTA FTA FTA FTA FTA (Singapore,
Thailand, Vietnam)
Australia WA FTA FTA (Perù) N (Mexico, N FTA N N FTA FTA (Singapore,
A. Mariani and E. Pomarici
Colombia, and Thailand, Philippines)

Chile) N (Indonesia)
FTA (AANZFTA)
New Zealand WA N FTA FTA FTA (Singapore,
Thailand, Philippines)
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FTA (AANZFTA)
Explanatory notes:
WA wine agreement, FTA free trade agreement, N negotiation ongoing for FTA, M member
CAFTA-DR Dominican Republic-Central America FTA (Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican
Republic)
NAFTA North American FTA (USA, Canada, and Mexico)
MERCOSUR South American FTA (Argentina, Brazil, Paraguay, Uruguay, and Venezuela)
R-K-B: FTA among Russia, Kazakhstan, Belarus
GCC Gulf Cooperation Council (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates; Jordan and Morocco have
been invited to join)
AFTA ASEAN FTA (Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand, Vietnam, Laos, Myanmar, and Cambodia). Unlike the
EU, AFTA does not apply a common external tariff on imported goods
AANZFTA FTA among ASEAN, Australia, and New Zealand
(#) Since 2008 wine imports to Hong Kong and Macao have not been subject to tariffs and there are no certification requirements
effective reduction of TBTs among the participating countries.3 The main

achievements of the WWTG can be summarized as follows:
1. The Mutual Acceptance Agreement on Oenological Practices—this agree-

ment eliminates barriers to trade based on differences in oenological prac-
tices by establishing that signatory countries will accept that wine made in
another signatory country should be allowed to be sold in its market,
despite different cross-border winemaking practices. Market access is con-
ditional upon compliance with WTO obligations to protect the health and
safety of consumers and prevent deception of consumers. The agreement is
a landmark in the development of international trade because it is the first
multilateral Mutual Acceptance Agreement, in any field, fully compliant
with the WTO’s TBT Agreement.
2. The Agreement on Requirements for Wine Labeling—this agreement
addresses barriers to the wine trade by harmonizing labeling requirements,
enabling the sale of wine in WWTG markets without having to redesign
labels for each individual market. Under the agreement, labels must con-
tain four items of mandatory information, anywhere on a wine bottle label
in a single field of vision, such as country of origin, product name, net
contents, and alcohol content.
3. The Memorandum of Understanding on Certification Requirements—
this aims to reduce trade barriers by encouraging the elimination of bur-
densome requirements and routine certifications of wine products and
ingredients. According to the memorandum, signatories’ certifications
regarding wine composition, free sale condition, or analytical reports about
the components of imported wines will no longer be required. However,
those certifications will still be required if needed to protect human health
or safety (like SPS Agreement requirements). Certifications on vintage,
grape variety, and appellation will only be needed if there are reasonable
doubts about the truthfulness of label representations.
Another important initiative is going on within the Asia-Pacific Economic

Cooperation (APEC), the Pacific Rim economic forum made up of 21
members.4 In 2008 the Wine Regulatory Forum (WRF) of government
3
The WWTG is presented in Chap. 12 (The International Wine Organisations and Plurilateral
Agreements and The Dialectic Between Harmonisation and Mutual Recognition of Standards Raúl
Compés López).
4
Australia, Brunei Darussalam, Canada, Chile, People’s Republic of China, Hong Kong, Indonesia,
Japan, Republic of Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, the Philippines,
Russia, Singapore, Chinese Taipei, Thailand, the USA, Vietnam.
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officials and stakeholders dedicated to regulatory cooperation and facilita-

tion of the wine trade was launched. The WRF has the following mission:
examining options to simplify and harmonize wine regulation across the
APEC region, reduce technical barriers to trade, and protect consumers and
sharing information and building capacity in wine regulation across the
APEC region.
Up to now the WRF has realized five main goals (https://www.wineregula-
toryforum.org):
1. To bring transparency to import requirements for wine exporters—the WRF com-

pleted five compendia outlining wine-related requirements in APEC economies
covering the following topics: export certificates, food safety and composition,
pesticide maximum residue limits (MRLs), labeling, and methods of analysis.
2. To provide regulators with examples of best practices to consider when revising
regulations—the WRF partnered with FIVS-Abridge5 to provide access to
the database for wine regulators so they can compare and contrast their
requirements against other economies when considering regulatory
changes.
3. To reduce the number of required export certificates—as a follow-up to the
2011 WRF dialogue on certification, in 2014 the USA and China devel-
oped a consolidated wine export certificate that resulted in a significant
reduction of unnecessary certificates issued for trade between those econo-
mies. Based upon this work, in 2016 the WRF created a consolidated
APEC Model Wine Export Certificate. Chile was the first economy to
implement this certificate (which also has become a model in the dairy
sector).
4. To educate non-producing APEC economies about wine as a unique food prod-
uct—the WRF brought regulators to wineries and wine testing laboratories
in the USA, New Zealand, Australia, and Vietnam.
5. To increase the accuracy of testing of wine in regulatory laboratories—the
WRF is in the third round of wine ring tests and labs are getting hands-on
support to help increase precision and accuracy.
5
FIVS-Abridge is a comprehensive, up-to-date, and interactive database of international regulations and
trade agreements covering wine. FIVS-Abridge consists of a database of national regulations and relevant
international agreements for markets around the world, covering topics such as certification, composi-
tion, labeling, marketing, packaging, production, promotion, tariffs, taxation, and transportation (http://
fivs-abridge.com/index.htm).
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14.5 F ree Trade Agreements Relevant to Wine

Trade
Over the last decade, in response to the difficulties of the Doha Round nego-
tiations, export-driven countries have chosen the path of bilateral/regional
free trade agreements (FTAs) to phase out barriers to trade among the signa-
tory countries. Such agreements facilitate trade but, unlike multilateral agree-
ments, have a discriminatory and trade-distorting effect. On the one hand,
these agreements are a way to phase out tariff and non-tariff barriers to trade
(thus facilitate trade, the so-called trade creation effect); on the other hand,
they create a comparative advantage for those signing them to the detriment
of other countries, so-called trade diversion effect (Dunn and Mutti 2004).
There are currently many ongoing negotiations and several trade agree-
ments already signed and it is interesting to analyze those who are most rele-
vant to wine, where there are agreements with countries that have put up high
barriers to trade and with the greatest growth potential of imports. Beside the
benefits gained from expanding exports, being first on the market and being
able to consolidate market position may also allow such countries to drive the
evolution of consumer preferences. (This is a major side effect for exporters in
new wine-importing markets.)
The scenario is quite complex and in continuous development, with a
plethora of different agreements in some way relevant to the wine trade. A
glance to the main agreements signed or in discussion (under negotiation) by
the main exporters with both traditional wine-importing countries and new
emerging markets is given in Table 14.6. To build this general portrait, the
primary sources were national government websites, updating previous
research (Mariani et al. 2014a, b).
Taking into consideration the different types of agreements and the partici-
pating countries shown in Table 14.5, some aspects should be highlighted.
The EU has followed a unique approach to the wine sector, signing specific
trade agreements with its main trade partners, which are in some cases also
competitors (USA 2006; Canada 2004; Mexico 2004; Chile 2002, new 2013;
Australia 1994, new 2009; South Africa 2002), with priority being given to
protecting geographical indications. Indeed, in these agreements the EU has
offered several concessions regarding the reduction of technical barriers (such
as recognition of oenological practices and simplified import procedures) in
exchange for the protection of GIs.
From 2006, following the strategy outlined by European Commission in
its communication Global Europe: Competing in the World (European
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Commission 2006), the EU has stepped up its efforts in trade negotiations to

create free trade areas with regions or countries assigning a central role to the
protection of GIs for wines, spirits, and food products (Ahearn 2011). Such
efforts have resulted in several trade agreements (European Commission
2018).
As regards traditional importing countries, the EU signed in September
2017 an FTA with Canada, the Comprehensive Economic and Trade
Agreement (CETA). In this market the USA, according to the North American
Free Trade Agreement (NAFTA), and Chile still have a preferential access. For
EU exporters, beside the phase out of tariff and the protection of GIs, other
advantages should be related to the new rules of transparency and simplifica-
tion applied by liquor control board (European Commission 2014). While
the negotiations with the USA on the Transatlantic Trade and Investment
Partnership (TTIP) were stopped until further notice at the end of 2016. The
USA, Chile, and Australia still have preferential access.
In December 2017, the EU-Japan Economic Partnership Agreement was
finalized and on 18 April 2018 it was submitted for approval to EU Member
States. According to the agreement, Japan’s tariff on wine imports from the
EU will be fully eliminated when the agreement comes into force, thus allow-
ing the erosion of the competitive advantage of Chile that has an FTA in force
since 2007 and also to gain a competitive advantage over Australian export
that has a more limited preferential access since 2015.6
With regard to new emerging markets in Asia, in 2011 the EU signed a
FTA with the Republic of Korea of great importance for wine (immediate
duty-free access) (European Commission 2010). In this market Chile, the
USA, Australia (2014), and New Zealand (2015) also have negotiated a pref-
erential access. Very close to ratification are the agreements signed with
Singapore, where Chile, Australia, and New Zealand already have preferential
agreements and Vietnam where Australia and New Zealand already have pref-
erential agreements (but with limited commitments to reducing tariffs for
wine). However, the negotiations between the EU and India are still in prog-
ress, and India’s market protection policy for wine is a major issue between the
two parties. In the meantime, India has already signed an FTA with Chile and
negotiation is ongoing with New Zealand.
6
Japan-Australia Economic Partnership Agreement (JAEPA) entered into force on 15 January 2015. The
bulk wine tariff (> 150 liters) was eliminated on entry into force of the agreement. The tariff for wine in
containers (> 10 l < 150 l) will be eliminated over ten years. The wine tariff for bottled (and bag-in-
box < 10 liters) wine will be eliminated on 1 April 2021.
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Table 14.6 Wine exporter’s main free trade agreements (FTA)

Sanitary and phyto-sanitary (SPS) measures agreement
Risk WTO members are required to base their SPS measures on a risk
assessment assessment, as appropriate to the circumstances, and to take into
account risk assessment techniques developed by relevant
international organizations
Harmonization WTO members are encouraged to base their SPS measures on
international standards, guidelines, and recommendations, where
they exista. Governments are allowed to choose their own
standards. However, if the national requirement results in a
greater restriction of trade, it is required a scientific justification
that the relevant international standard would not achieve the
appropriate level of health protection
Equivalence WTO importing members should accept the SPS measures of
exporting WTO members as equivalent if the exporting country
objectively demonstrates to the importing country that its
measures achieve the importing country’s appropriate level of
protection. Typically, recognition of equivalence is achieved
through bilateral consultations and the sharing of technical
information
Transparency Governments are required to notify other countries of any new or
changed sanitary and phyto-sanitary requirements which affect
trade and to set up offices (called “enquiry points”) to respond to
requests for more information on new or existing measures
Agreement on technical barriers to trade
Harmonization Where international standards exist or their completion is
imminent, WTO Members shall use them (or the relevant parts),
as a basis for their technical regulations except when such
international standards would be an ineffective or inappropriate
means for the fulfillment of the legitimate objectives pursued, for
instance because of fundamental climatic or geographical factors
or technological problems
Equivalence WTO Members are encouraged to accept foreign technical
regulations and conformity assessment procedures as
“equivalent” to their own (even if they differ) provided that they
fulfill the same objectives or offer an assurance of conformity
with standards equivalent to their own procedures
Mutual WTO Members are encouraged to enter into negotiations for the
recognition Mutual Recognition (Acceptance) of the results of conformity
assessment procedures
Transparency Governments are required to notify other members, through the
WTO Secretariat, of proposed measures that may have a
significant effect on other members’ trade and that are not based
on relevant international standards. To facilitate the exchange of
information, each member must put in place an “enquiry point”
that is able to answer all reasonable enquiries from other
members
a
The three international standard-setting bodies specifically mentioned are the
International Plant Protection Convention, the World Organisation for Animal
Health, the Codex Alimentarius Commission
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Over time, Australia and New Zealand have negotiated FTAs that phase
out tariffs on wine with other Asian countries, such as Thailand and the
Philippines. A FTA is in force with the Association of South-East Asian
Nations (ASEAN) countries (AANZFTA), overall with limited tariff reduc-
tion for wine (or total exclusion for religious or cultural sensitivities such as
for Malaysia).
In the Chinese market Chile and New Zealand have got an important
advantage over competitors, as both countries (Chile in 2005 and New
Zealand in 2008) have signed FTAs. Tariffs on wine imports (14% for bot-
tled wine and 20% for bulk wine) have been progressively reduced, to reach
zero in 2012 for New Zealand and, in 2015, for Chile. As a result, Chile
and New Zealand have been able to enjoy a significant advantage over com-
petitors (ABARES 2012). Later on, Australia signed a FTA in 2015 where
tariffs on wine will be eliminated within four years (from 14% to 11.2%
and then by a further 2.8% on January 1 every year until it reaches zero in
2019).
The EU and China, inside the “EU-China 2020 Strategic Agenda for
Cooperation”, have concluded in 2017 a bilateral agreement that will result in
the protection, against imitations and usurpations, of 100 European geo-
graphical indications (of which more than half related to wine) in China and
100 Chinese geographical indications in the EU. Cooperation between the
EU and China on geographical indications began over ten years ago, leading
to the protection in 2012 of ten geographical indication names on both sides
(“10+10” project).
Currently no country has agreements with Russia. (Negotiations were
ongoing with New Zealand; however, they were suspended in 2014 following
events in the Ukraine.) Russia joined the WTO in late 2011, and while its
high wine tariffs are likely to decrease over time, a complex and non-predictable
assortment of non-tariff barriers (mainly certification and customs proce-
dures) continues to be the biggest obstacles to entering this market. Recently
trade relation between Russia and the main Western countries has become
very controversial, as trade sanctions (embargo on imports) have been used
for political reasons by western countries supporting the Ukraine, all this in
response to Russia’s occupation of Crimea. Starting in 2014, Russia banned
some major food products (pork, poultry, fish and seafood, vegetables and
dairy products), from the EU, the USA, Canada, Australia, and Norway.
After, the embargo was extended to include Albania, Montenegro, Iceland
and Liechtenstein, the Ukraine, and Turkey (in October 2016 the embargo
on Turkish food was relaxed slightly). Wine up to now has been excluded
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from retaliation against major exporters,7 but Russia has first banned wine
imports from Georgia, between 2006 and 2013, and recently (2017) from
Montenegro.
The emergence of an increasing number of FTAs between wine-producing
countries and emerging consumer markets could change the mid- to long-
term dynamics of the global wine market.
Overall it is to be stressed that, among the New World wine countries,
Chile has focused much of its marketing strategy on wine export opportuni-
ties (Wehner 2009). As a result of its success in negotiating FTAs, it has
obtained preferential market access to the top developed and emerging wine
markets around the world. In contrast another important Latin-American
wine-producing country like Argentina, after joining the Mercado Común
del Sur (MERCOSUR), lost the possibility to sign any FTA on its own. This
lack of openness toward international trade, according to Del Bianco et al.
(2017), contributes to explain the country’s weak export performance. In
addition, it is to be mentioned that Argentina is the only major wine producer
to have imposed a 5% tax on the value of exported wines.
Australia and New Zealand have also been very active in negotiations to
reach agreements with emerging wine-importing Asian countries. In particu-
lar Australia has been able to bridge the gap with other competitors in two
major markets such as South Korea and China even though these competitors
had already obtained improved access to those markets through their own
FTAs (Anderson and Wittwer 2015).
In this scenario, EU exporters without a preferential access to China could
continue to face a disadvantage as New World producing countries, thanks to
existing trade deals, would be able to consolidate their positions. Overall, the
EU has been able to sign several FTAs that allow better access to markets and
an increase of GIs’ protection for wines.
14.6 Elements of Change

The current scenario of barriers to international wine trade could undergo
some remarkable changes in the near future which could be the result of
changes in (i) the international trade policy of some major player on the world
7
However, wine imports to Russia in the period 2015–2016 have been significantly lower than in the
previous two years; imports then rose to the pre-crisis levels (2013, 5 million hl for €920,000; 2017, 4.7
million hl for €880,000).
mmorag@uchile.cl
scene, or (ii) a more general decision concerning the international positioning

of the country, as is the case of Brexit, or, finally, (iii) changes concerning
additional requirements that companies have to satisfy, beyond legal require-
ments, which derive from new consumers’ sensibilities and from retailers’
requests.
14.6.1 Globalization Process and US “America First”
The world economic globalization process has been governed for a long time
by the paradigm of multilateral liberalization following the WTO’s rules. The
failure of the Doha round, together with the increase in the economic and
political weight of the major developing countries on the international scene,
mainly in the Asia-Pacific region, and, more recently, the US President Trump
strategy called “America first”, led to more complex and less predictable inter-
national relations.
In particular the USA seems to propose moving away from multilateral or
regional arrangements with multiple trade partners to bilateral agreements
where they can stress more their negotiation strength. Up to now, the USA
has withdrawn from the Trans-Pacific Partnership and has requested to rene-
gotiate the North American Free Trade Agreement (NAFTA). Furthermore,
they intend to rebalance trade with those countries that experienced the most
commercial surplus in respect to the USA, such as China and Germany
(ISMEA 2017), and start to increase tariff on some products (steel and
aluminum).
In such context, the USA runs a significant deficit in food and agricultural
trade with the EU. The threat to apply protectionist measures could have a
major impact on EU exports of food products and in particular wine, given
its great importance in trade with the USA: EU countries export wine for €10
billion, of which one third is exported to the USA.
Furthermore, the USA contests that the EU’s GI system contributes to the
asymmetry (trade deficit) in US-EU trade in agricultural products for prod-
ucts subject to the EU’s GI regime.
The Special 301 Report of the annual review of the state of intellectual
property protection and enforcement in US trading partners around the
world states that “The United States is working intensively through bilateral
and multilateral channels to advance U.S. market access interests in foreign
markets and to ensure that GI-related trade initiatives of the EU, its Member
States, like-minded countries, and international organizations, do not under-
cut such market access” (USTR 2017, p. 22).
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The EU GI agenda remains highly concerning for the USA, for several
reasons. In the first place, the EU GI system raises concerns regarding the
extent to which it impairs the scope of trademark protection, including a
respect to prior trademark rights. Secondly, some troubling aspects of the EU
GI system influence access for the USA and other producers to the EU mar-
ket. Lastly, EU continues to seek to expand its GI system beyond its border,
through bilateral trade agreements and in multilateral and plurilateral bodies
as well (such as the WIPO Lisbon Agreement) which impose the negative
impact of the EU GI system on market access and trademark protection in
third countries.
The USA is trying to fight the EU’s aggressive promotion of its exclusionary
GI policies through FTAs negotiation, as well as in international forums,
including APEC, WIPO, and the WTO. “In addition to these negotiations,
the United States is engaging bilaterally to address concerns resulting from the
GI provisions in existing EU trade agreements, agreements under negotiation,
and other initiatives, including with Canada, China, Costa Rica, Ecuador, El
Salvador, Indonesia, Japan, Malaysia, Morocco, the Philippines, South Africa,
and Vietnam, among others” (USTR 2017, p. 23).
14.6.2 UK Brexit
Brexit, the parting of the UK from the EU, is going to modify the interna-
tional wine trade scenario as the UK is one of the most important players in
the wine market. The UK currently represents the first wine consumer market
among non-producing countries, the second wine importer in value and vol-
ume, and it is also an important re-exporter. Such wine-related trading activi-
ties make the UK the home of a flourishing wine business, which is worth
about £17 billions. When it quits the EU, the UK will leave a wide regional
integrated area and will lose the preferential import and export channels rep-
resented by the preferential agreements arranged by EU with several partners.
As a consequence, wine imports in the UK (13.5 million hectoliters) and wine
exports (about 880,000 hectoliters for a value of €615 million) from the UK
will be exposed to barriers higher than today. How this will happen will
depend on how the UK will define trade relationship with the EU and other
partners. Rollo et al. (2016) suggest that the most practical trade policy for
the UK to adopt when leaving the EU is the EU’s tariff schedules previously
agreed at the WTO. On the base of this assumption, and under the hypoth-
esis that negotiations for preferential arrangement will take years, Anderson
and Wittwer (2017, 2018) have simulated Brexit effects. They forecast that
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between 2014 and 2025 the growth (in value) of the UK’s wine consumption
and import will be 9% instead of 24%, warning, though, that it will be the
slower income growth to make a smaller wine market in the UK in 2025 than
would otherwise have been the case. As a matter of fact, the import duties
applied in their simulations are the small ones indicated in Table 14.2, which
can play only a minor role.
Anderson and Wittwer’s simulations assume a smooth transition in the
technical aspects of trade between the UK and the EU. But this is a worrying
issue for the wine business community. In October 2017 the most important
bodies representing traders and producers in the UK and Europe signed a
joint declaration8 urging “the EU and the UK to agree to a gold standard
agreement that preserves wine and spirit tariff-free trade and fair competition”
and calling “for predictable, pragmatic, non-disruptive transitional imple-
mentation arrangements, allowing businesses to continue trading in the
knowledge that the rules will not change at all without a phase-in period”.
Indeed, the joint declaration highlights several matters that may endanger
trade flows between the UK and the EU after the transition period, generating
relevant trade barriers, which involve rules concerning oenological practices,
labeling, intellectual property rights protection and in particular GI protec-
tion, custom practices, and people movements. Also in the case of Brexit,
therefore, NTMs will be the true variables which will determine trade flow
evolution.
14.6.3 Private Standards
Last but not least, it should be stressed that the international wine trade is
constrained not only by national technical regulations resulting in non-tariff
barriers but also by private standards. In the last decade there has been an
intense development of private standards, mainly targeting, initially, food
safety (often exceeding requirements established in international standards
developed by the Codex Alimentarius) and in recent years mainly related to
social and environmental aspects. Such standards can be set by individual
firms (usually large retailers), collective national organizations, or interna-
tional standards organizations. Private standards are voluntary, but if required
by large retailers and/or large companies they become de facto mandatory for
suppliers. Such standards do not fall within the rules of the WTO. Indeed,
these standards area matter of increasing concern for all the effects that they
Joint paper about Brexit published by spiritsEUROPE, Comité Européen des Entreprises Vins, Scotch
8
Whisky Association, Wine & Spirit Trade Association, October 2017.
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may have upon access to international markets, especially for small businesses
(Henson and Humphrey 2009). Private standards, therefore, may operate as
barriers which will discriminate not among countries but among types of
firms or supply chains.
Concerning social and environmental standards, in most wine-producing
countries specific initiatives were developed to measure, communicate, and, in
some cases, certify the compliance of wineries with principles of sustainable
development, that is, environmental, social, and economic sustainability
(Flores 2018; Merlo et al. 2018; Mariani and Vastola 2015). The scope was to
make available to wine producers a simpler and more focused standard com-
pared to ISO standard as ISO 14001 (environmental management) or ISO
26000 (corporate social responsibility). Despite the lower administrative bur-
den of such wine-specific standards, the compliance with their prescription
could be difficult for some actors and, in some circumstances, for all actors in
specific areas resulting in relevant trade barriers (Pomarici et al. 2015; Jourjon
et al. 2016). Moreover, the compliance with such standards, in case of not-
integrated supply chains (bottlers purchasing wine or winery purchasing grape)
may have serious consequences on the overall chain’s governance and on the
linkages among the participants (Cafaggi 2016). As a matter of fact, in order
to guarantee final product compliance with the desired set of requirements, the
lead firms have to apply a strict control upon the whole upward supply chain.
Therefore this compliance asks for specific contracts between participants to
the supply chain, sometimes international,9 which may influence both the
forms and the functions of the chains, and that may result in new barriers to
trade. As a matter of fact, regulatory provisions related to social responsibility
and sustainability expand the scope of contracting along the chain from the
exchange (of products or services) to the regulation (of the process) and pro-
duce changes in the contractual relationships between participants, that is, the
leader chains and the suppliers and eventually their subcontractors.
14.7 Final Remarks

Previous paragraphs show that the international wine trade has to overcome a
complex variety of barriers, deriving from import duties and, more often, from
NTMs. As a matter of fact, wine exports to some markets are still hampered
9
The importance in the wine industry of de-integrated supply chains emerges in many chapters of this
book and with quantitative details in Chap. 23 (Conegliano Valdobbiadene Prosecco case). The increas-
ing relevance of de-integrated supply chains with an international extension is demonstrated by the rise
of international trade of bulk wine, which accounts for near 40% of total export (+ 88% on 2000).
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by high tariffs and regular wine export faces a variety of technical barriers
related to the particular characteristics of this alcoholic product, which is
obtained with production practices often subject to rules and regulated by
specific labeling systems.
In this scenario, the object of negotiations is a push to negotiate bilateral
agreements, to reduce the impact of tariff and non-tariff barriers which affect
wine trade. In negotiating these agreements, each exporting country targets
specific issues to protect the distinctive elements of their offer and, in so
doing, distorting and diverting effects are generated. It is not easy to assess the
effects of preferential access to the markets on export flow changes, because
the competitive performance is determined by many factors (e.g. exchange
rate, marketing effort) but scientific studies demonstrate the discriminatory
effect of preferential agreements (ABARES 2012) and the heterogeneous
impacts on trade of technical measures (Dal Bianco et al. 2016).
Considered the elements of change discussed in Sect. 14.6, in the future
the impact of tariff and non-tariff barriers could become even stronger and in
such perspective it would be useful to renovate the commitment for a non-
discriminatory reduction of non-tariff barriers at the very least. As Codex
Alimentarius does not cover many relevant concerning issues (and it is not
likely that something will change), it would be desirable to increase the role of
OIV, eventually with an official recognition of this organization by WTO.
Concluding, what looks worth highlighting is that the rules concerning the
wine’s international trade act as barriers but also, as far as NTMs are con-
cerned, act as drivers of specific behavior, which are relevant elements of the
global wine market’s institutional settings. As a matter of fact, such rules,
beyond the discriminatory effects that may operate locally, are likely to sup-
port the consumers’ trust, which is the key element of a fair progress in a
globalized wine market.
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mmorag@uchile.cl
Part III
Diversity of Organization in the Wine
Industry
Coord. by Adeline Alonso Ugaglia
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15
Introduction: The Diversity
of Organizational Patterns in the Wine
Industry
Part I showed the extreme diversity of the wine industries worldwide,

diversity which is particularly interesting from an industrial economics
point of view for further analyses. These different industries show an
important diversity in the major actors constituting the core of the indus-
try, the role(s) they are playing in the industry and in the production
process, plus the strategies they set for the future. The diversity of the
players, the length of the value chain and the complexity of the organiza-
tion depend on the status of the wine countries (Fig. 15.1). The wine
industries of the Traditional producing countries (also called Old wine
countries) are known to be more atomized and fragmented than the wine
industries of the New producing countries. In this chapter, we present the
different organizational patterns for grape and wine production and
the strategies developed by key players in the Old wine countries to dis-
tribute and sell wine. These strategies are not only basic business models,
but also a way to face their recent loss in trade shares and to catch demand
from emerging consuming countries, that is to survive and sustain on the
world wine market.

https://doi.org/10.1007/978-3-319-98633-3_15
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320 A. Alonso Ugaglia
New world Old world
Grape growers GRAPES Grape growers
On-farm winemaking
Wineries/ WINE Wine co-operatives
Processing facilities
Wholesalers
Negociants
Large distributors/
Imorters
Brokers
Unions
Importers/Wholesalers INTERMEDIATE BODIES
Direct sales
Direct sales
Direct sales
Retailers (super and
hypermarkets, wine Retailers (super and
stores, HORECA, hypermarkets, winestores,
e-commerce) SALE HORECA, e-commerce)
Consumers
Fig. 15.1 Simplified representation of wine industries for Old and New world coun-
tries. (Source: Author; Note: The dashed arrows reflect the potential financial contract
to buy fresh grapes between producers and co-operatives or between co-operatives
and commercial unions depending of the law status of the co-operative)
15.1 P
roducing Firms: From Producing Grapes
to Selling Wine
The production of grapes and wine rely on different actors according to the
status of the country (Old/New), but it can also vary within a wine industry,
especially in the Old world. For grapes (or must) production, it is possible to
observe simple grape-growing farms in both types of countries. The farms are
producing fresh grapes and sell or deliver them to the following actor in the
chain. But in the Old world, these farms can also be the ones processing, dis-
tributing and/or selling the wine directly to the consumer. They are in this
case very different from the basic grape-growing farms, especially from those
in the New world. This difference has some consequences on the economic
performance of these firms. Regardless of how it is measured, the winemakers’
income has a great variability. This variability is related to differences in size
(area) of farms (economies of scale in the New world) but also in productivity
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Introduction: The Diversity of Organizational Patterns in the Wine… 321
and costs of the labor force. The winemakers bottling and selling their wines
also have to support the cost of vinification and commercialization. The price
also plays an important role in the differentiation of winegrowers’ income
levels. But the main difference for winegrowers from Old and New wine
countries relies on yield. The appellation regimes dominating the Old world
constraint yields to preserve quantity and quality of wines on the market,
while yields are not limited in the New world. It means that the production
costs are higher in the Old than in the New world, relative to the quantity
produced per ha. As might be expected from the product differentiation and
market segmentation in France, income differences are quite clearly related to
geographic division into regions (Delord 2011). Wine bottling can be consid-
ered as an alternative element of income differentiation. The appellation sys-
tem is certainly an essential factor to explain the differences in the economic
performance of grape-growing farms, but the collective and individual aspects
of this differentiation should also be distinguished.
15.2 The Strategies of Downstream Wine Firms

Many different players are concerned by wine distribution in the Old wine
countries compared to the New world where the organization at this stage is
less complex with large intermediate bodies. In the Old World, the down-
stream players are diverse, including winegrowers producing wine from their
own grapes as seen above, but also wine co-operatives, negociants, wholesalers
and importers are concerned. They faced a huge success during the twentieth
century, growing in volume and value while benefiting from the rapid growth
of world trade flows. But the context has changed, the consumption decreases
in Europe, and these countries have to compete with the wines from the New
world. Facing such changes, the players in distribution channels have set some
different strategies to survive.
This diversity is more or less represented according to the countries and the
wine industries concerned. The number and the diversity of companies that
make up the downstream sector reflect the wealth and importance of this sec-
tor in France for example. It is synonymous of richness in terms of market
adaptation but can also be perceived as a weakness that could explain the loss
of market shares of the Old world countries. Indeed, too much diversity in the
number of actors involved in the wine industry can lead to long chains and
too much fragmentation, preventing the emergence of very large firms that
alone would be able to provide high volumes in the markets to position them-
selves competitively. While the heterogeneity of downstream companies has
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been shown in particular in France (Couderc 2008) (except in Champagne),

other studies also show the huge capacity that players can develop to group
and grow together via mergers and other processes of concentration. For
example, some wine co-operatives formed commercial unions in order to
strengthen their market power (Cadot et al. 2016). These commercial unions
are co-operatives of wine co-operatives and are responsible for the marketing
and sales of the wines processed by their members (wine co-operatives). They
can also adapt their strategies according to their situation and merge with
other wine co-operatives or stay small and autonomous if they benefit from a
niche market (Corade and Lacour 2015). Mergers allow to manage the value
all along the chain, when forming commercial unions is focused on supply
concentration. Combined with the type of management and governance they
choose, the authors show that they can develop a positive autonomy (autono-
mous co-operatives, types 1 and 2) or an autonomy leading to marginaliza-
tion (autonomous co-operatives, type 3). A strategy based on the autonomy
of the co-operative can result in positive as well as in negative trajecto-
ries. Therefore their resilience and sustainability depend on the strategy they
choose (Fig. 15.2).
Even if the atomization of still wine supply remains the norm in the Old
wine countries compared to New ones, it also seems that SA companies (e.g.,
wine merchants or negociants) started the process of concentration in the Old
producing countries. Martin (2008) shows that negociants are also develop-
ing different types of strategies in addition to the concentration process. They
can either adapt but keep the link to appellation regimes (weakening the ter-
roir by the dilution of the geographical reference: e.g., creation of brands with
a light reference to the location, or providing some technical advice to the
growers in order to claim for their wine typicity) or they can conduct local
Consolidation model Consolidation between cooperatives and commercial unions
Type 1 Integrated governance Same manager for the co-operative(s) and the union
Union model
Type 2 Shared governance Union co-management
Type 3 Fragmented governance Different managers for the co-operative(s) and the union
Type 1 Autonomy and specialization Small co-operatives focused on specific products

Autonomous co-
operatives model Type 2 Autonomy and isolation Small co-operatives without any perspective
Type 3 Autonomy of scale Co-operatives big enough
Fig. 15.2 Diversity of strategies for wine co-operatives. (Source: Corade et Lacour
2015)
mmorag@uchile.cl
Introduction: The Diversity of Organizational Patterns in the Wine… 323
bypass operations to develop similar strategies to those of the New world

countries (developing branding and varietal wines). Pesme et al. (2010) com-
pare two of the main players in the Aquitaine wine sector according to the
strategies they develop: the co-operatives and the wine merchants. They ana-
lyze the nature of strategic operations from the point of view of the concentra-
tion process taking place in the Bordeaux-Aquitaine region. Their results
provide both qualitative and quantitative evidence to prove that a number of
collaborative approaches have been adopted in the region. They highlight the
fact that these players are more willing to respond to the conditions of a new
competitive environment and consequently to consider new strategic
approaches. The wine value chain is undergoing deep restructuring process.
With the spotlight focused on producing a size effect on the sector through
concentration, they examine in greater detail what this process really is. It is
not limited to size objectives as it commits the players to thorough production
and market changes. This led to concentration operations analyzed in terms
of strategic changes, notably with regard to the flexibility of the strategies that
the players are meant to design and develop. All of these results from different
studies ultimately result in a heterogeneous performance of these downstream
firms, but which does not only depend on the size of the firms. Some strate-
gies set by these firms well manage to value the factors of competitiveness
which have made the success of the sector a long time ago, based on the valu-
ation of concepts as terroir, origin and reputation. Other strategies are not
successful and the downstream firms struggle to survive. However, there are
only few exits from the market.
The chapter is dedicated to further analyses of the organization of vineyards
and wineries and the strategies of wine co-operatives and negociants. Thanks
to case studies (mainly from France), these contributions provide a better
understanding of the organizational patterns in the Old world wine indus-
tries. The chapter organized as follows:
Chapter 16 uses the Allen and Lueck (2002) transaction cost framework to
examine the organization of vineyards and winemaking. The authors focus on
three important organizational features of worldwide wine production: lim-
ited contracting, small vineyards producing high-quality grapes and the sepa-
ration of wineries from vineyards in the nineteenth century.
Then, Chap. 17 shows that the widespread assumption that mergers are the
best way for co-operatives to break free from their “natural” territorial anchor-
ing (perceived to be a strong impediment to their global insertion) is ques-
tionable. Observation of the recent merging processes of wine co-operatives
shows a more subtle phenomenon at work. On the one hand mergers do
indeed loosen their constitutive territorial anchoring. On the other hand,
mmorag@uchile.cl
they also come together with new geographical and organized proximities,
prone to the re-dimensioning of the territorial scale of the co-operative action.
These findings were supported by a round of thorough interviews with most
of the managers of the Aquitanian co-operatives created by merger between
1994 and 2006.
Chapter 18 deals with the diversity as a specificity of the wine market.
There are an extremely large variety of wines, as well as producers who make
them. What is important to understand about this diversity is that it is orga-
nized. Diversity is embedded in a complex set of social relationships and is
governed by various institutions. From this perspective, the organization of
this level of variety can be seen as a historical process. The actors involved
constantly seek to ensure their business models are coherent with the current
production and market environment. To achieve this, they do not simply
adjust their own strategy or the way they implement it but also try to change
the environment, where it is needed, by interacting with other decision mak-
ers. In the wine industry this manifests itself as the power game between wine-
growers and merchants. The wine region of Bordeaux is a striking example of
how historically organized diversity can be transformed into the basis of suc-
cess on the wine market. At the same time, this example shows the fragility of
a regional production system which is only temporarily coherent.
References
Cadot, J., A. Alonso Ugaglia, B. Bonnefous, and B. Del’homme. 2016. The horizon
problem in Bordeaux wine co-operatives. International Journal of Entrepreneurship
and Small Business 29 (4): 651–668.
Corade and Lacour. 2015. Les trajectoires d’évolution des coopératives vinicoles
girondines. Canadian Journal of Regional Science 38 (1/3): 29–37.
Couderc, J.P. 2008. Manifeste pour un aggiornamento commercial dans la filière vin
en France. In Introduction, Bacchus 2008, 336p. Paris: Dunod.
Delord, B. 2011. Faits et chiffres : La forte dispersion des revenus dans la viticulture
française. Économie rurale 324 (juillet-août): 60–70.
Lueck, D. 2002. The nature of the farm: Contracts, uncertainty, and organization.
Cambridge: MIT Press.
Martin, J.C. 2008. Terroir et stratégies du négoce dans la filière vitivinicole : une
approche historique. In Bacchus, 2008, 19–38. Paris: Dunod.
Pesme, J.O., M.C. Bélis-Bergouignan, and N. Corade. 2010. Strategic operations
and concentration in the Bordeaux-Aquitaine region. International Journal of
Wine Business Research 22 (3): 308–324.
mmorag@uchile.cl
16
The Organization of Vineyards
and Wineries
Douglas W. Allen and Dean Lueck
That the vineyard, when properly planted and brought to perfection, was the most
valuable part of the farm, seems to have been an undoubted maxim in the ancient
agriculture, as it is in the modern through all the wine countries. … The vine is
more affected by the difference of soils than any other fruit tree. … vineyards are in
general more carefully cultivated than most others, …. In so valuable a produce the
loss occasioned by negligence is so great as to force even the most careless to attention.
[Adam Smith, Wealth of Nations, Book One, Chapter 11].
16.1 Introduction
It is not surprising that Adam Smith would include a discussion of wine in his
great treatise—after all, wine has been in the hearts of poets and at the center
of civilization since the beginning of cultivation. Nor is it surprising, indeed
almost predictable, that Smith would also focus in on the critical economic
aspects of wine. Although most of his discussion relates to the political econ-
omy of old vineyard interests, as opposed to the planting of new vines in an
effort to protect their rents, there is mention of three critical features. First,
wine is a valuable commodity. Second, wine output and quality are heavily
D. W. Allen (*)
Department of Economics, Simon Fraser University, Burnaby, BC, Canada
e-mail: allen@sfu.ca
D. Lueck
Indiana University, Bloomington, IN, USA

https://doi.org/10.1007/978-3-319-98633-3_16
mmorag@uchile.cl
326 D. W. Allen and D. Lueck
influenced by Nature in a complicated way. Third, wine production is subject

to necessary meticulous care by the grower and vintner. These three funda-
mental economic features still remain part of the wine story and are impor-
tant in understanding the organization of vineyards and wineries.
This book contains chapters on the wine industry from all over the world.
Each chapter contains a general description of the industry within a given
country, concentrating on quantities, varieties, values, and overall industry
structure. Our purpose is to consider a selected number of organizational
issues of wine production, and in doing so we rely on these chapters as well as
the limited studies found in the literature for institutional detail. Although
there are many aspects to wine organization, and exceptions everywhere, in
this chapter we focus on three stylized facts that are present across all of the
chapters. These issues include matters of contracting at the vineyard (the use
of labor contracts, the scarcity of tenancy contracts), the inverse relationship
between vineyard size and wine quality, and the historical vertical disintegra-
tion of the vineyard from the winery in the nineteenth century (and the recent
reintegration for boutique wineries).
In general, we rely on the framework of farm organization articulated in
Allen and Lueck (2002). Indeed, the organization of wine was not examined
in that work and now provides an out-of-sample test of that model. Like other
crops, we show below that the organization of vineyards and wineries is best
explained by the specific transaction costs that arise in the context of growing
grapes and producing wine. This industry produces an interesting case study
because of the asymmetric advances in science for producing wine compared
to growing grapes and because transaction costs play such a large role in
production.
We begin with a brief review of Allen and Lueck (2002), followed by a
discussion of grape and wine transaction cost issues. We then explain the vari-
ous organizational features and close with a discussion of how grapes and
wines relate to other crops and their organization.
16.2 T
he Allen and Lueck Framework
of Agricultural Organization
Allen and Lueck (2002) created a general framework for examining farm
organization that relied on three key features. First, all parties involved choose
the organizational structure that maximizes the expected value of the produc-
tive relationship. Second, Nature plays an important twofold role: creating
mmorag@uchile.cl
The Organization of Vineyards and Wineries 327
uncertainty in the year-to-year outputs that masks the actual inputs used in
production and creating predictable seasonal stages of production through
crop cycles, stages, and timeliness. Third, all parties are risk neutral, concerned
only with the expected net value of production. These three features allow the
development of simple models within the context of a specific crop that
depend mostly on the transaction cost constraints of the crop in question.
Difficulties that arise over strategic behavior or risk aversion are avoided, and
straightforward comparative statics are forthcoming.
In the Allen and Lueck framework, output is: Q = h(l, e, k) + θ, where Q is
the observed harvested output which is assumed to have a unit price and l is
land attributes, e is labor effort, k is other capital, and θ ~ (0, σ2) is the ran-
domly distributed composite input of Nature. Any given input can only be
measured with error or might even be unobservable. Because the human
actions h(l, e, k) and the actions of Nature θ cannot be separately identified,
the conditions for transaction costs are present. The logic then is for the par-
ties to choose the form of organization that maximizes the value of this output
subject to the transaction costs that are created with any given type of
organization.1
Allen and Lueck stressed that in agriculture the critical transaction costs
result from conditions “close to the ground” or “at the field level.” Thus, the
ability of farmers to exploit the difficult-to-measure land attributes, underre-
port the crop output, over-report crop inputs, or shirk their labor duties to
their advantage act as major constraints to contracting and vertical integra-
tion. Likewise, land and other capital owners can exploit the labor inputs of
farmers or shirk on the application of their capital inputs. The role Nature
plays at the field level varies by crop, time of year, and over time. When it
comes to the organization of vineyards and wineries, our focus is on the spe-
cific features of grapes and fermentation that allow parties to exploit one
another.
16.3 The Transaction Costs of Grapes to Wine

Wine is the final product of an agricultural-manufacturing process, not unlike
bread, cheese, or salami. And yet, the transaction cost conditions of wine
production are often so extensive that wine is somewhat of a unique farm
1
“Organizations” can be thought of as a collection or distribution of property rights. Transaction costs are
defined as the costs of establishing and maintaining a distribution of property rights (Allen 1991).
mmorag@uchile.cl
product. Wine comes (mostly) from grapes through a process of natural fer-
mentation. If ripe grapes are placed in a container, they begin to break down,
and the natural yeast on the skin interacts with the sugars in the juice to pro-
duce an enzyme to initiate the chemical reaction into alcohol. The fermenta-
tion process stops when all the sugar is converted or the alcohol content is
high enough to kill the yeast. Thus, unlike other so-called processed foods,
wine almost produces itself.2
Unlike most agricultural commodities where the quality range is quite nar-
row, with wine there is an enormous quality dimension, and only the highest
end is fit and desired for human consumption. Thus, although most wine
comes from just one vine species (Vitis vinifera), these produce hundreds of
thousands of wines.3 These various wines differ in appearance (color, clarity),
aroma (intensity, types such as earthy or floral), and taste (sweetness, body,
acidity, tannins, flavors). These in turn are determined by the location of vine-
yard, terrain, viticulture, vinification, storage, and transport. Each of these
general inputs is the result of hundreds of decisions, some of which are
observable.
16.3.1 Vineyards
Unlike other fruits and vegetables, grapes do not like nutrient-rich soils, and
they do well on steeply sloped hillsides due to the enhanced drainage and
sunshine.4 The limited locations for growing grapes fit for wine increase the
scarcity and price of wine land.5 For a given location, the soil fertility, acidity,
heat retention, and soil type determine the best variety, vine density, row
direction, spacing, vine training, pest control, and winter protection. Many of
these decisions are made at the start of the vineyard, but many, like canopy
management, pruning, and timing of harvest involve ongoing on-the-spot
decisions.
Vines, if properly looked after, can produce for 50–100 years. Much of the
processes of layering to fill in gaps and pruning are done by hand and are
almost art forms based on skill and knowledge. Pruning too much can reduce
2
Thornton (2013) has a detailed description of the science of fermentation.
3
Thornton (p. 55, 2013) notes there are many varieties, perhaps in the thousands using a narrow defini-
tion of variety.
4
Thornton (p. 60, 2013).
5
As noted in several chapters of this book, across the world wine is one of the most valuable crops per
acre. The high value of wine land means that the costs of abusing such land are also high.
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yield, while too little pruning can lower the fruit quality. Likewise canopy
management is critical: too little sun prevents grape growth and composition,
but too much can burn and dehydrate the grapes. Thinning, another hand
process, removes some immature grapes during the growing season to improve
the quality of remaining grapes. Every vineyard manager must decide on the
optimal quantity-quality trade-off. As grapes ripen the acid content starts to
fall, but the sugar content increases, creating another trade-off that has to be
managed to produce the appropriate sugar-acid balance. Grape tasting,
another difficult-to-measure skill, is still the best way to determine the opti-
mal time to harvest.
In each stage of grape production, the conditions for rather large transac-
tion costs exist. Vineyards are location-specific firms that rely on critical natu-
ral ingredients that vary from location-to-location, year-to-year, and
day-to-day. These measurement problems (Barzel 1982) allow costly actions
to hide behind the random inputs of Nature. Vineyards also produce a grape
whose value depends on its quality, and although the quality of the grape can
be measured at some cost, the human inputs required to produce high quality
are difficult to measure.6 When difficult to measure, suppliers of high-quality
inputs have moral hazard incentives. Finally, the grapes themselves are small
and costly to divide at the vineyard and are therefore easy to hide or steal.7
16.3.2 Wineries
Once the grapes are picked, they begin to decay immediately. Because of this
perishability, it is important for them to be crushed soon so fermentation
starts within a proper window. Wine quality at this stage depends heavily on
the ability to manage yeasts, bacteria, sugars, and other chemical elements. In
contrast to the vineyard side of production, where grapes are still grown under
natural conditions similar over the past few centuries, a technical revolution
has taken place in wineries.
Prior to 1850 almost all vineyards were integrated with the winery—the wine
being produced in the farmer’s cellar. Knowledge of the fermentation process
was weak, control of temperature was difficult, and the role of natural elements
was enormous. The result: much of production was not palatable.8 Wine quality
6
Goodhue et al. (2003) note the difficulty of measuring these qualities.
7
Simpson (p. 4, 2009), notes “But transaction costs in viticulture were higher than with most other forms
of agriculture, because nature influenced considerably both the size and quality of the harvest.”
8
Simpson (pp. 5–7, 2009).
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was so variable and difficult to verify that fraud was common as various impos-
ters sold products under the guise of noted or reputable producers.9
By 1900, technological changes in the form of thermometers, refrigerators,
continuous presses, aero-crushing turbines, sterilizers, and pasteurizers altered
wine production and organization.10 Further innovations came in the form of
cultured yeasts, which are more predictable than the natural yeasts present on
the grapes. Cultured yeasts produce wine with a smaller variance in output
quality. Likewise, the introduction of stainless steel tanks allowed for better
control of temperature, oxygen exposure, and speed of fermentation, reduc-
ing the variance in the flavor of the wine. These innovations not only created
elements of economies of size but drastically reduced the role of Nature in
production. Although the fermentation process remained complicated and
continued to require extreme monitoring, these processes could be directly or
indirectly measured for most qualities of wine.
Because of these technological changes, there has been an interesting orga-
nizational difference between vineyards and wineries. Whereas, at one time
they were both stages of wine production in which Nature (and therefore
transaction costs) played a large role, in the mid-nineteenth and early twenti-
eth century technical innovations occurred that reduced the transaction cost
environment at the winery stage, but not at the level of the vineyard. In the
next section we show how the presence and transformation of transaction
costs have shaped the organization of the wine industry.
16.4 Explaining Organizational Features

In this section, we examine how organizations involved in producing wine grape
and wine have varied over time and location. We use the transaction costs frame-
work just described and merge it with the data from other chapters in this volume
and other studies. In particular, we examine the use of contracting, the relation-
ship between quality and vineyard size, and the evolution of the winery.
16.4.1 Contracting in the Wine Industry
Vineyards have historically been family farm operations. Even today, vine-
yards remain relatively small compared to the dramatic increases in farm sizes
9
Simpson (p. 11, 2009) notes that in the late nineteenth century artificial wines made from raisins mixed
with water and sugar accounted for one-sixth of French and one-quarter of Spanish wine consumption.
10
Simpson (p. 9, 2009).
mmorag@uchile.cl
for grains and other important crops. Also as the quality of grape produced at
a given vineyard increases, so does the likelihood of family organization on
that vineyard. In modern times there are large vineyards, often organized
along corporate lines, but they mostly produce low-quality grapes.
In Allen and Lueck (2002), contracting arises when labor, land, and other
capital is owned by different parties and can be combined in low transaction
cost settings. In agriculture, land (and the assets attached to the land) is
often combined with labor through cash rent or share contracts. In a cash
rent contract, the labor owner (the farmer or grower) uses the attributes of
the land assets in exchange for some fixed dollar rent per acre. At the margin,
the price of any given attribute, such as moisture or canopy size, is zero. This
means that when cash rent contracts are used, they provide the farmer with
an incentive to exploit the landowner’s land attributes to increase output and
income to the farmer. Hence, for a grain crop under conventional tillage, the
farmer might cultivate the cash-rented land in such a way that excessively
uses the moisture and soil nutrients to increase the short-run harvest at the
long-run expense to the landowner. If a landowner is able to measure or
monitor this exploitation, this moral hazard could be eliminated. In agricul-
ture, this transaction is simply the cost of doing business with the cash rent
contract.
The most common alternative to cash renting is a share contract, in which
the farmer pays his rent in a fraction of the output rather than in cash. In a
share contract, farmer moral hazard is reduced compared to a cash rent. Even
though the farmer uses the land attributes at a zero marginal price, the mar-
ginal returns of this exploitation are now lowered by the “tax” of the share.
This “tax effect” also reduces the labor effort incentive of the farmer and cre-
ates an incentive to underreport the crop. The potential for underreporting
can be a serious problem for share contracts when the output is easy to hide
and valuable.11
In cases in which crop production has just one major transaction cost prob-
lem: either soil exploitation is important, farmer labor is vital, or crop theft is
critical. When there is just one particular problem at hand, then one of these
two—contracts cash rent or crop share—is often sufficient to manage the
contracting arrangement. For example, alfalfa is a hay crop that is planted
(often not annually), cut periodically throughout the year, baled or stacked,
and sold. For alfalfa, soil exploitation is limited because the farmer has limited
Umbeck (1977) noted that the problem of underreporting in gold mining made share contracts were
11
highly unlikely on the gold fields during the California rush.
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access to the soil nutrients, but crop theft is possible given the size of bales.
Under these conditions, a cash rent contract works well, and virtually all
alfalfa contracts are cash rents. On the other hand, sugarcane grants the farmer
full access to the soil but is impossible to steal given coordination and indus-
trialization required to harvest and process it. For sugarcane, there is also just
one major transaction cost problem (soil exploitation) and virtually all sugar-
cane contracts are crop-share contracts.
In some situations, like the production of grapes, all of the transaction
cost effects are present: land attributes can be exploited, farmer labor easily
shirks, and outputs can be stolen. In these cases the simple one- or two-
dimensional contract used in most agriculture becomes incomplete and
incapable of managing the transaction costs at hand. In these cases, con-
tracting is unlikely.
Consider a vineyard available for contracting with a viticulturist-farmer.
The viticulturist’s incentives are not incentive compatible with the long-
term maintenance of the vines and grape stocks, and moral hazard results.
To enhance the short-term goals, the farmer will engage in pruning, can-
opy management, tilling, and pest control that will increase the short-term
crop yield but harm the long-term viability of the vine stock and lead to
years of recovery. Indeed, it is hard to imagine another crop where the cost
of mis-attention and poor incentives are higher—as noted above long ago
by Adam Smith. Any use of (short-term) cash rent contracts in the leasing
of vineyard land would adversely affect the longevity of the vines.
Crop sharing also has substantial transaction costs. As noted, grapes are
highly sensitive to the quality of labor effort applied during the growing sea-
son. When crops are shared, the viticulturist has an incentive to lower his
quality and quantity of labor input, including the maintenance of the vines.
There also is the potential for grape theft. Grapes are small and vary in quality
across the entire crop. Given their high value, a farmer working on a share
contract would have a strong incentive to collect those grapes of high quality
for himself and leave the poorer grapes for the landowner.
With both cash rent or crop-share contracts in there remain are poten-
tially large transaction costs. These costs include the resource costs and
deadweight losses arising from measuring the timeliness and quality of
farmer effort and the hidden land attributes. These costs also include the
resource costs and deadweight losses arising because Nature contributes to
variation in the volume and quality of the harvest. Given that vineyards
are subject to so many types of transaction cost problems, it is not surpris-
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ing that contracting over the vineyard stage of production was rare histori-
cally and today.12 Vineyards are mostly operated by owner-operated family
farms.
Interestingly, on these small family run vineyards, the use of wage labor,
especially during harvest, is common. Wage workers are paid by time and
have an incentive to slow down and work with reduced efforts. Wage labor is
used for simple tasks where output is highly correlated with time and effort
reasonably easy to monitor. These tasks bear little in common with the viticul-
ture tasks of the owner. During harvest, the use of wage labor for high-quality
grapes has two major benefits. First, workers who slow down and “take their
time” are not “dirty pickers” who pick just the low-hanging visible fruit. The
slow wage picker is more likely to pick all of the grapes on the vine. Second,
the wage picker has no incentive to mishandle and bruise the fruit out of
haste. Thus, as grape quality increases, more harvest workers on the vineyard
are used and paid by the hour.
16.4.2 Vineyard Size and Grape Quality
In almost every discussion of wine-growing regions, one relationship stands

out: high-quality grapes tend to be grown on small vineyards. The chapters in
this volume find this relationship as well, although Chile (Mora this volume)
seems to be an exception. In his discussion of the American wine industry,
Thornton observes:
Large wine-grape growers tend to specialize in producing low-quality grapes for

bulk commodity wines, while smaller vineyards often concentrate on growing
higher-quality grapes for premium and luxury wines. (p. 61, 2013)
Allen and Lueck note that the size and organization of the farm is determined
by some fundamental trade-offs. On the one hand, the random role of Nature
raises the costs of monitoring and measuring such inputs as labor effort, land
use, and capital exploitation—leading to small firms controlled by a single
residual claimant. In addition, the predictable seasonal elements of agriculture
often prevent any gains from specialization found in large-scale operations—
12
Carmona and Simpson (2012), mostly relying on our theory laid out in The Nature of the Farm, do an
excellent job in describing the problem of underreporting grape quantity and quality and use this as a
base for explaining why sharecropping was so little used historically. They also go into considerable detail
in terms of how contracts were modified away from the standard simple share contracts to accommodate
the special circumstances of grapes.
mmorag@uchile.cl
again, leading to small firms. When a farmer has to change tasks every few
weeks due to the changing seasons that drive the biological aspects of produc-
tion, there is little point in specializing in any given task. Large roles of Nature,
on both the random and seasonal dimensions, encourage small family farms.
On the other hand, whenever Nature can be removed from production, then
some type of larger firm often emerges. When random elements are eliminated,
then contracting over labor, land, and other inputs becomes routine. When the
seasonal elements of production are reduced or eliminated, then larger scales of
operation are common with corporate structures.
Consider the facts noted above in the production of high-quality grapes.
These grapes tend to be produced on steep hillsides where machinery has a
difficult time operating. They are produced in regions that rely on natural
weather patterns and not irrigation.13 They rely on hand pruning, thinning,
and picking. Each stage requires care and attention which are difficult to
monitor.14 Under such circumstances, the moral hazard problems are so great,
and the gains from specialization of a given task are so small that each farm is
limited by the capabilities of a single residual claimant. High-quality vine-
yards will be small farms operated mostly by one family.
In most wine regions, there are a small number of vineyards that make up
large fractions of the total acreage used and tonnage produced. For example,
in California these vineyards tend to be located in the central valley where the
land is flat, the vines irrigated, and the pruning and picking are mostly done
by machine.15 The flat land allows for the use of machines and for certain
types of irrigation, both of which reduce the role of Nature and allow for large
numbers of wage employees to be used. Since wage employees cannot be
expected to take extreme care of the grapes, these large vineyards tend to pro-
duce a lower-quality, lower-variance grape. Taken together, the reduced
measurement costs allow corporate structures to exist, with wage labor and
larger plantation-style organization.
13
Indeed, in France the high-quality grapes are not allowed (by law) to be irrigated, (see Ugaglia,
Cardebat, and Jiao, this volume). Irrigation reduces variance in both yields and quality. Hence, other
things equal, increased irrigation should also be correlated with vertically integrated wineries and
vineyards.
14
In the chapter on Chinese wines (this volume), Jiao and Ouyang note that in the Ningxia region of
China the climate is such that the high-quality vines must be covered each winter to prevent damage from
the cold.
15
Lapsley, Alston, and Sambucci (this volume). They also note that in the US just three firms (Gallo,
Wine Group, and Constellation) produce or import 50% of wines consumed. The 20 largest firms in the
US have a market share of 90%, dominated by the low-priced segment of the market (Thornton, pp. 2–3,
2013). Albisu et al., in this volume, note that in Spain 84% of wineries are small, with less than ten work-
ers, while four large firms do the bulk of exporting, most of which is considered low-quality cheap wine.
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16.4.3 The Evolution of the Winery
The second phase of wine production involves the winery, the place where the
harvested grapes are converted into wine. Historically the winery was also a
family run affair (indeed, it was the same family) with no contracting.16 The
Allen and Lueck framework provides an explanation for this historical vertical
integration. Prior to the mid-nineteenth century, the role of Nature in the
fermentation process was enormous and mostly misunderstood by those in
the industry. The grapes were perishable and fermentation starts almost imme-
diately after harvest, and any delays in production could mean a vast reduc-
tion in wine quality.17 During this era, wine making was by guess and by God,
depending on Nature and ill-defined skills associated with experience and
personalized knowledge.
As noted above, a series of innovations throughout the nineteenth century,
including increased understanding of the biochemistry of fermentation, allowed
for better control and actual measurement over the fermentation process. The
result was a great reduction in the role of Nature in the winery. What had at one
time been a mysterious process became understood and controllable. At the
same time, the efficient size of a modern winery increased, both in terms of
physical and human capital. This increased fixed physical and human capital
resulted in falling average costs. Large wineries were able to exploit the econo-
mies using hired wage labor, which could be more cheaply monitored given the
reduced role of Nature. Even in the sensitive areas of blending and timing, low
monitoring costs allowed for high-quality wage labor to be engaged.
Beginning in the mid-nineteenth century and carrying on for the next 100
years, wineries vertically disintegrated with vineyards.18 Once produced,
high-quality grapes could be measured (unlike the inputs used to produce
them), and so it was possible for vineyards to supply wineries with grapes—
especially for medium- to low-quality grapes. As a result, large wineries are
16
Fernandez-Olmos et al. (2008) explain this by focusing on the asset specificity of grapes and vines.
Presumably either side of the vineyard/winery transaction could conceivably hold the other side hostage
given the importance of asset and timing specificity. However, given the repeated nature of wine produc-
tion, the importance of reputation, and the ease of the law in regulating such behavior, this seems an
unimportant transaction cost source to explain the vertical integration. It also seems unable to explain the
vertical disintegration we explain below.
17
Franken and Bacon (p. 107, 2014).
18
Knox (1998) argues that in Europe it was the rise of wine cooperatives that separated the vineyard from
the winery to increase marketing and transfer rents. This fails to explain why the separation took place in
other parts of the world where contracts between vineyards and wineries were used instead of coopera-
tives. Simpson (pp. 1–2, 2009) has a discussion of the relationship between family vineyards and coop-
erative wineries in Europe.
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able to contract with many small vineyards.19 In Europe, cooperatives formed

at the winery level, while in North America corporate wineries contracted
with the vineyards, but the fundamental forces were the same in both
cases.20
Interestingly, the emergence of high-end “boutique” wines over the past 30
years has seen a move toward vineyard and winery reintegration in this sec-
tor.21 These wineries develop a reputation for a very specific, complex wine,
and often this results from the reintroduction of Nature into the process. For
example, these wineries often use the natural yeasts found on the grapes,
rather than use cultured yeast; they often hand-select grapes for a specific
acid/sugar/taste balance.22 The reintroduction of Nature into the wine-making
stage and the requirement for grapes with potentially difficult-to-measure
qualities means that the transaction costs of market relations between the
vineyard and the winery are higher. Not surprisingly then, these boutique
firms reintegrate back to have the vineyard and winery within one firm under
the control of a single residual claimant.
16.5 Conclusion
The organization of vineyards and wineries can understood using the
transaction costs framework of Allen and Lueck (2002).23 These transac-
tion costs arise when individual farmers and capitalists to alter their inputs
in ways that enhance their own wealth at the expense of each other. In
agriculture, the v ariability of Nature introduces random elements into
production and prevents the parties from deducing the inputs of others
and the seasonal aspects of Nature that limit the ability to exploit gains
from specialization.
19
Thornton (p. 66, 2013) notes that 90% of California grapes are sold by contract to wineries.
20
Dramatic reductions in transportation costs have allowed the expansion in world trade, but it is not
clear how this change has effected wine and vineyard organization. Unsurprisingly, it has increased the
size of the industry.
21
Even in China, where the wine industry is the youngest, the best wines have integrated vineyards and
wineries. Jiao and Ouyang state:
When it comes to the elite Chinese wineries, the wineries in Ningxia are best representatives. All
wines are produced by the grapes cultivated in their own vine-yards with certain requirements in
quality thus to reflect of its origin. [this volume]
Robinson (p. 779, 2006).
22
Simpson (2011) examines related issues, stressing path dependence, and political economy forces.
23
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Although most of the chapters in this volume are concerned with the funda-
mentals of quantity and price of wines around the world, each chapter contains
some information on the organization of the wine industry. We have used these
studies to examine three common features of wine production around the world:
the limited role of contracting, the negative correlation of vineyard size with grape
quality, and the general separation of vineyards from wineries over the past 150
years. In each case the observed behavior is well explained by an understanding of
the transaction costs involved, and a recognition that the organization of the
industry results from an attempt to mitigate these transaction costs.
References
Allen, Douglas. 1991. What are transaction costs? Research in Law and Economics 14
(Fall): 1–18.
Allen, Douglas, and Dean Lueck. 2002. The nature of the farm: Contracts, uncertainty,
and organization. Cambridge: MIT Press.
Barzel, Yoram. 1982. Measurement costs and the organization of markets. Journal of
Law and Economics 25 (1): 27–48.
Carmona, Juan, and James Simpson. 2012. Explaining contract choice: Vertical coor-
dination, sharecropping, and wine in Europe, 1850–1950. Economic History
Review 65 (3): 887–909.
Fernandez-Olmos, M., J. Rosell-MartÌnez, and M. Espitia-Escuer. 2008. Quality and
governance mode choice: A transaction cost approach to the wine industry.
Research in Agricultural & Applied Economics 1–6.
Franken, J., and K. Bacon. 2014. Organizational structure and operation of the
Illinois wine industry. Agricultural and Resource Economics Review 43: 104–124.
Goodhue, Rachel, Hyunok Lee DaleHeien, and Daniel Sumner. 2003. Contracts
and quality in the California Winegrape industry. Review of Industrial Organization
23: 267–282.
Knox, Trevor. 1998. Organization change and vinification cooperatives in France’s Midi.
Working paper 7-1, University of Connecticut.
Robinson, J., ed. 2006. The Oxford companion to wine. 3rd ed. Oxford: Oxford
University Press.
Simpson, James 2009. Old world versus new world: The origins of organizational diver-
sity in the international wine industry, 1850–1914. Working papers in economic
history, 09–01, Universidad Carlos III de Madrid.
———. 2011. Creating wine: The emergence of a world industry, 1840–1914.
Princeton: Princeton University Press.
Thornton, James. 2013. American wine economics. Berkeley: University of California
Press.
Umbeck, John. 1977. A theory of contract choice and the California Gold Rush.
Journal of Law and Economics 20 (2): 421–437.
mmorag@uchile.cl
17
Wine Co-operatives and Territorial
Anchoring
Marie-Claude Bélis-Bergouignan and Nathalie Corade
17.1 Introduction
Since the beginning of the 2000s, the French wine sector has been facing a
brutal crisis, in sharp contrast to the euphoria of the 1990s. The nature of its
problems is twofold as the underlying fall in French domestic demand, whose
fragility has been observed near unanimously, is coupled with a decline in
external markets, this within a context of global market oversupply. Producers,
unions or inter-branch organizations have reacted1 and have begun to develop
a response. Generally speaking it involves two strategic orientations focused
on future penetration of external markets: total or partial reorganization of
production models directed simultaneously toward rejuvenating supply and
improving attractiveness via efforts on quality and marketing and incitement
from regulatory and administrative bodies to increase groupings in produc-
tion areas and institutional territories of reference, in other words the AOC
(Appellation d’Origine Contrôlée).
Reports from Berthomeau (2001), César (2002) and Pomel (2006).

1
M.-C. Bélis-Bergouignan (*)

Bordeaux University, Bordeaux, France
N. Corade
Bordeaux Sciences Agro, Gradignan, France
e-mail: nathalie.corade@agro-bordeaux.fr

https://doi.org/10.1007/978-3-319-98633-3_17
mmorag@uchile.cl
340 M.-C. Bélis-Bergouignan and N. Corade
Table 17.1 Co-operative mergers (1968–2006)

No. of No. of co-operatives
mergers involved Names of co-operatives involved
1968 2 4 Bourg and Tauriac
Vic Bilh and Madiran
1989 1 5 Labatut + Orthevielle + Pouillon +
St-Cricq + Mugron
1990 1 2 Bergerac and Le Fleix
1992 1 2 Montravel and Sigoulès
1996 1 2 Gensac and Graves de Vayres
1998 2 4 Landerrouat and Duras
Francs and Gardegan and Tourtirac
2000 1 2 Mugron and Geaune
2001 1 2 Gan and Bellocq
2002 2 6 Vertheuil and St-Estèphe
Prignac, Queyrac, Begadan and
Unimédoc
2004–2005 4 10 Cocumont and Beaupuy
Carsac-de-Gurson and St Vivien
Ordonnac and Unimédoc
Anglade, Générac, St Gervais and
Marcillac
2006 1 2 Landerrouat/Duras and Cazaugitat
Co-operatives are not exempt from these trends with the recent Pomel
report (2006, p. 23) highlighting the need for mergers. These recommenda-
tions reflect a process which has long been observable. Indeed, in Aquitaine
where the wine co-operative, an important element at the “heart of the wine
sphere” (Doucet 2002), represents 45% of farms and 28% of volume pro-
duced; grouping processes (most of which are mergers) have already started
and their number has increased over the last decade (Table 17.1). Thus, of the
17 mergers carried out since 1968, 9 have been completed since 2000: they
have involved 22 co-operatives, reducing the total number from 77 in the
1990s to 64 in 2006.
As they have triggered a noticeable change in the co-operative system,
these mergers are frequently analyzed as the destructive vector in their con-
stitutive territorial attachment (Chiffoleau et al. 2005). Undeniably, wine
co-operatives are deeply rooted in their territory due to both their locally
based mutual governance and their products’ characteristics. It is also unde-
niable that territorial attachment can represent a constraint on their global
integration. We believe that this analysis is questionable because the opposi-
tion between territorial attachment and a globally oriented merger strategy is
excessive. A priori, the logic behind merger processes involves loosening
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Wine Co-operatives and Territorial Anchoring 341
rather than transcending a co-operative’s territorial constraints. This problem

has influenced our analysis of merger processes in which Aquitaine wine co-
operatives have been actively involved.2
We have therefore conducted a series of semi-directive interviews with
managers of organizations who have participated in grouping operations,
most of which being mergers carried out from the 1990s onward in the
Gironde (33) and Dordogne (24) departments, in other words 7 of the 11
mergers completed between 1990 and 20063 as well as a grouping in the form
of a commercial union.4
These thorough interviews, carried out with managers of merged organiza-
tions, were built around an analytical framework designed to collect the fol-
lowing information, notably as regards the loosening of the territorial
constraint: the history of the merger and/or the grouping; the objectives gov-
erning its implementation; the view of the players concerning the ineluctabil-
ity of merger processes in the Aquitaine wine-growing region; the methods
used in these processes; the real effects, that is to say the results in economic,
structural and even human terms and the interviewed players’ evaluation of
these real effects compared to those expected; the driving elements as well as
those that hinder the success of these processes.
Based on the analysis of these answers, the present article aims to show that
while playing on global dimensions linked to the need to adapt to market
conditions, and despite the prevailing opinions of the subject, these mergers
are neither motived by, nor respond to, the need to break free from a founding
territorial attachment. With reference to the proximity economy, we will
show that even if it generates obstacles to global adaptation, this need is not
excluded from merger processes which do not omit territorial links. Indeed,
these processes represent specific coordination mechanisms which, through
new forms of expression, bring together spatial proximity with other forms of
non-spatial proximity (Pecqueur and Zimmermann 2004).
2
This work was carried out with the financial participation of the Aquitaine region within the framework
of research projects attached to the Institut des Sciences de la Vigne et du Vin de Bordeaux.
3
The studies, having been carried out in January 2006, with the latest merger to date, between the co-
operatives of Landerrouat/Durasand of Cazaugitat, having taken place in March 2006, we did not study
it as such but we were informed of the project by the Landerrouat Director, who explained the reasons
for its creation and its future methods.
4
Among the seven mergers studied, there is one which concerns two co-operatives initially belonging to
the same commercial union and whose manager is also director of the commercial union. This particular
case provided the opportunity, at the same time, to study the grouping that union toward co-operative
constitutes.
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Thus, geographical proximity, which focuses classically on the spatial dis-

tance separating economic players, prevails, a priori, in the co-operative
merger operations we have observed. But it is not necessarily an efficient sup-
port for coordination between these merged co-operatives. The groupings we
have seen are based upon different forms of logic to those of organized proxim-
ity, which Rallet and Torre (2004) express in terms of proximity of similarity
and proximity of belonging. First of all, proximity of similarity governs group-
ings between co-operatives.5 Nevertheless, the latter have neither identical
interests, despite possessing objectives which have become common ones, nor
the same working rules. Proximity of belonging, a supplementary dimension
to organized proximity, therefore has to take over in order to complete the
merger process. With reference to the fact that interactions between the mem-
bers of the same organization are facilitated by their recourse to the same
rules, we can, via the creation of new co-operative rules in the merged struc-
tures, highlight the re-dimensioning of the territorial scale of co-operative
action. The article therefore shows that if co-operative mergers represent ways
to loosen them from territorial constraints (1), they trigger a re-dimensioning
of the territorial scale of co-operative action (2).
17.2 T
he Merger: The Favored Way to Loosen
Territorial Constraint
The merger, whether it be a merger-acquisition or a pure merger,6 is the opera-
tion by which two or more companies bring their assets and liabilities together
to create a new structure with the commitment of each party being irrevers-
ible, contrary to that which characterizes a simple strategic alliance. In
Aquitaine, more than 60 years after their creation and following a path marked
by the creation of commercial unions or alliances—frequently leading to a
later merger—mergers are, to the detriment of alliances, the favored response
of co-operatives to the shocks generated by the recent globalization of the
wine market. These mergers can be interpreted as the co-operative’s way to
loosen its territorial attachment, which is seen as a constraint in the global
context of the sector where organizations with less dependency on a territorial
logic are shown to be efficient.
5
The logic of similarity refers to the fact that the players share the same representation system, the same
beliefs and the same knowledge, independently of their affiliation to a specific organization.
6
In the last case, the two organizations disappear to rebuild a new one.
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17.2.1 From Crisis Diagnosis to Spatial Lock-In
A priori, we can only be struck by the similarity of situation which led to the
creation of wine co-operatives in Aquitaine in the 1930s and their mergers in
recent years. The crisis is the common denominator of both movements.
Thus, wine co-operatives were created to respond to a double problem: a tech-
nical problem since wine-making requires heavy investment (in winery equip-
ment) and a capacity to innovate in the technological and oenological fields
and a commercial problem because with the slowdown in sales opportunities
and overproduction, concentrating the supply is a means to increase both
their bargaining power and their ability to adapt and innovate (Hinnewinkle
and Roudié 2001).
Moreover, the crisis, as an upheaval in market conditions and a danger to
their existence, seems as accurate a description of the wine-making situation
in the 1930s as in the 2000s. The need to unite seems to have been simply
reactivated by the current context. This substantiates the idea put forward by
Draperi (Draperi and Touzard 2003, p. 77) that “the market place is central
to explaining changes in co-operatives”. Subsequently nevertheless, the com-
parison made between these two movements suggests the existence of funda-
mental differences, with globalization leading toward market re-dimensioning
strategies linked to the need for diversification and greater supply flexibility.
Thus, a merger expresses less the need to lighten the costs uniting geographi-
cally close entities and more that of reaching a “critical” size in order to posi-
tion one’s product on a global market and break free from a territorial
constraint which hinders competitive efficiency.
17.2.1.1 Responding to New Market Configurations
The current wine crisis originates in the redefinition of the rules governing
competition. Formerly, the competitiveness of French wines, and notably
those with an AOC, suffered little on world markets, but now it is being chal-
lenged by the success of wines coming from traditionally non-producing
countries. These so-called New World countries or new producing countries
(Australia, South Africa, United States, Chile, New Zealand) have doubled
both their production between 1990 and 2000 and their exports between
1980 and 2000. During the same time period, traditional producer countries
have only seen their exports rise by 20%. If, as regards world exports, Europe
and countries such as France and Italy have confirmed their domination, this
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is nevertheless being eroded little by little by countries on the American con-

tinent and countries such as South Africa and Australia (Onivins 2002).7
As these new countries originally consumed small quantities of wine, they
directed their strategies toward the world market from the outset. As a result,
the latter, already highly segmented, underwent massive repositioning toward
mid-market and upmarket segments, the traditional ones occupied by French
production and in particular production in Aquitaine which is 98% based on
AOC products. For the last 20 years, these New World countries have com-
bined this market positioning with a downstream strategy which is deliber-
ately directed toward the consumer and in particular toward the world
consumer. This strategy is based upon differentiation via private commercial
brands supported either by worldwide groups with diversified product ranges
(Diageo, LVMH, etc.) or by national groups with an international dimension
concentrating almost exclusively on wine (Gallo, Southcorp, Mondavi, etc.)
(D’hauteville et al. 2004). The product is not defined according to terroir but
by brand and grape variety. Henceforth, the vineyard structuring associated
with these products is different to that found in AOC systems which is gener-
ally more fragmented, more piecemeal and less integrated (D’hauteville et al.
2005; Garcia-Parpet 2001). Effectively, brand promotion requires signifi-
cantly higher financial resources.
The changes in supply resulting from the rise of these new producing coun-
tries is taking place in a context of stagnant world consumption due to the
combined effect of a drop in consumption in the traditional producing coun-
tries (e.g., French consumption fell from 160 liters/year/person to 56 between
1960 and now) and an increase in other parts of the world. This double phe-
nomenon has created innovation opportunities in the wine field as a response
to consumers with little drinking experience (in the countries where con-
sumption is increasing). Secondly, consumption habits have changed in the
traditional countries with wine evolving from having a nutritional status to
being a leisure product. These innovations have been bolstered by an absence
of rules (outside those of the OIV8) managing production modes equivalent
to those prevailing in the AOC system.
The study we have carried out confirms that the merger of wine co-
operatives is perceived both by institutional actors as an ineluctable process
7
“The market share in volume of New World countries in trade exchanges increased from 4% in 1990 to
14% in 1997 and 19% in 2001.”
8
OIV: Organisation Internationale de la Vigne et du vin, in charge of defining international norms in
order to protect producers and consumers.
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(Pomel 2006), certainly in order to survive but, above all, to respond to the
demands, defined as such, of the world wine market.
17.2.1.2 Territorial Attachment as a Spatial Lock-In Factor
The competition exerted by brand strategies on terroir strategies undermines

the productive organizations supporting the latter. Henceforth, the close link
with the territory induced both by the co-operative organization and the
belonging to an AOC is criticized when it is considered as a limiting factor to
the competitive efficiency of these organizations.
This means the near-exclusive affiliation of Aquitaine’s production to AOC
could limit its capacity to adapt to the changing consumer demands. Indeed,
a terroir strategy (Rastouin and Vissac-Charles 1999) is distinct from brand
differentiation initiatives by its reliance on the value it gives to a specific
resource, that is to say a comparative advantage “naturally” attached to a given
territory (production methods inherited from tradition, the intrinsic charac-
teristics of a territory, know-how, etc.). By making exclusive reference to spe-
cific territorial resources, AOC wine production systems generate a specific
asset (Colletis and Pecqueur 2004)9: the terroir becomes the basis of a market
strategy.
For their part, brand strategies applied in the wine sector are based upon a
generic asset: the grape variety, whose characteristic is not to be attached to a
place or to a territory, while not being associated with a localized or localizable
production method either. This is effectively an asset which is easily transfer-
able.10 On the contrary, strategies linked to the AOC base their effectiveness
upon strong territorial attachment. Thus, for Benkala and Boutonnet (2004),
“AOC strategies, by basing product positioning on a specific territorialized
asset, thereby resist standardization and homogenization, even production
relocation” (p. 1).
From an economic perspective, associating territorial attachment with
AOC affiliation has many disadvantages. Firstly, it generates diversity and
heterogeneity in the same time space and between different temporalities. An
AOC product only possesses the characteristics attributed to it by the terroir
at instant t, and in contrast to a grape variety or brand product, its room for
9
According to Colletis and Pecqueur (2004, p. 4): “By asset we mean factors ‘in activity’, whilst by
resources it is a question of factors to exploit, organise or still to be revealed.”
10
“A generic factor is independent of the ‘spirit of the place’ where it is produced” (Colletis and Pecqueur
2004, p. 4).
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maneuver concerning these characteristics is rather limited as the AOC strictly

defines production rules. Moreover, the AOC limits productive capacities
since production quantity is limited through defined maximum yields per
hectare and the demarcation of vine-planted surface areas. This hinders inter-
nal growth strategies based upon extending wine plantations.11
Secondly, the co-operative structure itself limits growth strategies. Territorial
division which defines the territorial area on which the co-operative can draw
its resources (surfaces) limits the extension capacity of the wine-growing area
due to two phenomena: the non-elasticity of the surface area of a given terri-
tory and the competition between several co-operatives on the same territorial
area. Indeed, in areas featuring a high level of wine-making activity, which is
the case of the Gironde, for example, it is not unusual for the same space to
be shared by several co-operatives. Moreover, they often have to face competi-
tion from private cellars or even great chateaux with well-established reputa-
tions. Added to this are the classical risks incurred by co-operatives, that of the
departure of members tempted to go it alone as this decision is frequently seen
as more rewarding and more closely associated with value.
Thus, the low or even inexistent capacity to increase yields, to increase the
number of members and to develop production are all hindrances to the
implementation of growth strategies. As regards the co-operatives we studied,
before their merger, most experienced a significant loss of members (some-
times as high as 20%) in a context of near-stagnation of wine-growing surface
area and production volume. The reduction in the number of members, the
consequence of both the difficulties encountered and the attempt to over-
come them by reducing the productive structure, revealed their inadequacies
in the new demand context.
These co-operatives have therefore suffered the same classical fate as agri-
cultural activities in general and terroir activities in particular, of detrimental
links to the land and to a geographical origin. Henceforth, their territorial
attachment has turned into a confinement close to genuine spatial lock-in
(Rallet and Torre 2004). With Boschma (2005), we can note that this lock-in
is not only cognitive, since access to new markets involves acquiring previ-
ously unknown skills and aptitudes, but also organizational ones since going
beyond it implies a transformation of the co-operative organization.
Nevertheless, it does not seem that this situation is irretrievable as mergers can
potentially help to overcome it. The interviews carried out with the managers
of merged organizations support the idea that in a first case, mergers are a
means to release the spatial lock-in, at least partially. In particular, this is
We know of current thinking (2006) concerning merger projects in the l’Entre-Deux-Mers region.
11
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because they can increase the scale of the partnership networks, be they client
and distribution networks or ones with suppliers.
17.2.2 M
atching the Market, the Mergers’ Primary
Objective
If groupings are not a new phenomenon in the world of co-operatives, it

seems nevertheless that the form (of a merger) these groupings have taken
these last few years reflects a stronger will to break free from territorial con-
straint. Indeed, excepting the mergers carried out in 1968, explained in
essence by the wish not to segment a wine-growing heritage, the wave of more
recent mergers, completed since the 1990s, is a response to a different logic:
that of the market’s re-dimensioning.
17.2.2.1 F
rom a Grouping to a Merger: From Connective Forms
of Logic to Additive Ones
In Aquitaine, the grouping of wine co-operatives is recurrent. From the years

1950–1960 onward, they have been based upon commercial unions for the
most part and packing unions for others. In this way, we have seen the cre-
ation of:
–– In 1966, UNIMÉDOC, the commercial union of co-operatives from the

Médoc area, today merged with these same co-operatives.
–– In 1967, PRODIFFU, created in the form of a SICA (Société d’Intérêt
Coopératif Agricole, French for collective interest agricultural society) and
transformed into a co-operative union in 1984. It sells bottled wine made by
five cellars which are its members.
–– In 1974, UNIVITIS, created in the form of a SICA and transformed into
a co-operative union ten years later, today grouping four co-operatives
focused on selling bulk and bottled wine.
–– In 2004, Bergerac Vins, the most recent organization, bringing together
two co-operatives and a union selling bulk wine.
Along with these unions, other forms of commercial grouping have

appeared. In 1959, for example, SOVICOP, an open joint stock company, was
formed by the grouping of seven co-operatives (four in Dordogne and three in
Gironde). Today it sells 250,000 hl of bulk or bottled wine, the d ifferent
appellations produced by 24 co-operatives in Gironde, Dordogne and Lot-et-
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Garonne, to négociants, large-scale retailers and specialized wine shops both in

France and for export. Similarly, there is PRODUCTA, created in 1949 as a
public limited company by three co-operatives. Other wine co- operative
unions exist for packing: UNIDOR in the Bergerac area which was created in
1961 and l’Union Saint-Vincent in 1981 in the Entre-Deux-Mers region.
The development of commercial unions has led to a diversification of the
commercial circuits used by co-operatives in Aquitaine (Couret 1999). In
Gironde and in Dordogne, which geographically cover the co-operatives we
have studied, French négociants represent 49.8% of sales outlets, of which
11.7% are for export, 17.8% for unions, 9% for individuals, 7.1% for large-
and medium-scale retailing and 4% for wholesalers. This diversification alone
does not respond to what is currently at stake: on one hand because it does
not grant enough room for maneuver or bargaining power to the co-operatives
regarding the networks on which they depend, especially with négociants and
large retailers, and on the other hand because it does not provide access to the
building of common mechanisms which would enable them to break free
from spatial, cognitive and organizational lock-ins.
Thus the process in current use is very different because groupings, espe-
cially commercial ones, have been substituted by the most extreme form of
alliance: a merger. This movement, for which we can anticipate an extension,
therefore no longer involves a simple connective logic of interfirm relations
but a real additive logic which is irreversible and which implies a heavy com-
mitment from the partners (Douard and Heitz 2003) enabling them to make
decisive steps forward in this direction. The interviews conducted with the
co-operative managers who have carried out these restructuring processes help
us appreciate the stakes and the perspectives.
17.2.2.2 M
ergers: Between Defensive Strategies and Offensive
Ones
The answers to the first three questions on our interview grid indicate that the
groupings, and more precisely the mergers, are effectively perceived as means
to eliminate the territorial constraint described above—at least partially.
Indeed, thanks to the first question, we can identify the initial causes which
led to the merger. By grouping these causes, linked to the history of the orga-
nizations concerned and of the objectives finally put forward at the time of
the merger (question 2), we can show that today, mergers have become the
favored route (question 3) to break free from territorial constraint, hindering
co-operative development (Table 17.2).
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Table 17.2 Mergers’ initial causes and final objectives (number of answers to these
items/number of co-operatives studied)
Merger cause Merger type Objectives
Difficulties to sell: 7/7 Defensive: due to the Save a co-operative: 5/7
Difficulties linked to demand of structure(s) in Increase volumes to tackle
quality and difficulty, 4/7 large- and medium-scale
technical problems: Offensive: initiated by a retailers or penetrate the
4/7 structure anticipating international market: 3/7
Difficulties linked difficulties to come, 1/7 Develop the bottled-wine
directly to volumes Mixed: meeting between market: 3/7
(insufficient size to structures having Widen the range with the
sell well on difficulties and those extension to new AOCs: 2/7
markets): 2/7 anticipating future Rationalize the link between
Difficulties linked to difficulties, 2/7 production site/product: 1/7
the absence of Decrease the number of
reputation: 1/7 competitors: 3/7
Reach a sufficient size to develop
quality and integrate
traceability: 2/7
The mergers we studied are mostly justified by the will to “save” an organi-
zation in difficulty or in need of support. The current context is an important
lever in the decision to implement these mergers. Indeed, it forces the organi-
zations to consider productive and commercial strategies with the potential to
stand together in the face of current market conditions. Thus, it is always the
emergence of a problem which leads to the thinking process and then to the
triggering of the merger process, with the “crisis” making the idea of a merger
more obvious and more immediate.
If the notion of crisis implies a difficult situation, be it experienced or antic-
ipated, it is noticeable that all the cases we studied came under this logic. Even
when the merger appears as more “natural”, like in those cases between com-
mercial unions and their affiliated co-operatives, it is the “crisis” which trig-
gers the “enactment”.
Henceforth, mergers or groupings appear as survival operations where “ill”
organizations lead “healthy” ones to consider a merger. Indeed, we have only
found one example of a co-operative seeking a merger partner before a co-
operative in difficulty came to see it first. The result of this is a majority of
merger-acquisitions, even if most of the production sites are preserved.
In all circumstances, the economic difficulties are defined as difficulties to
sell: they are directly or indirectly related to problems of size and/or production
volumes. Indeed the commercial problems are generally associated with dif-
ficulties to improve the quality of products, which translates either into items
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unsold or sold at very low prices or low bargaining power on the market
linked to weak negotiable volumes, themselves leading to low valuation of the
products. Mergers are therefore considered as a means to “bypass” the obstacle
of size which was generated in part by territorial constraint.
Thus the examples studied show that mergers are carried out to rationalize
the organization of the co-operative fabric rather than to go on the offensive.
Notwithstanding, these mergers are an opportunity to define or redefine stra-
tegic choices, notably for the “acquiring” organizations. Thus, if the principal
causes of mergers stem from a crisis situation, one that needs to be addressed
or anticipated, little by little, during the merger process, they transform into
more offensive strategic objectives.
Equally, the merger (or the grouping) is always justified by the will, experi-
enced as a necessity, to reach a size considered more satisfactory to be “better”
from a commercial point of view. In fact, it ends up being seen as a genuine
opportunity to commit to more offensive commercial strategies. It is therefore
less a question of achieving internal economies of scale in the strict sense than
reaching a “critical” size enabling the acquiring companies to embark upon
actions which they would never have been able to perform alone.
On this point, the co-operatives’ managers are unanimous: a merger does
not generate economies of scale per se. On the contrary, it first of all feeds into
the development of new functions and new actions, and even when redeploy-
ments of activities are put into place, this implies extra costs. However, after a
while, the learning effects can lead to co-operatives benefitting from econo-
mies of scale. A priori, these propositions are confirmed in the cases we ana-
lyzed by the improvement of merged co-operatives’ performances in terms of
volumes and turnover. The recovery in productive performances, whether it
be attributable to the mergers we studied or also the result of processes put in
place before the merger, still leaves strong disparities between merged co-
operatives, either in terms of member numbers (an order of 1–5), areas culti-
vated (of 1–13), in crop volumes (1–11) or turnover (1–18).12
Increase in volumes and rationalization of the co-operative organization, in
particular regarding the link between production site and product, enabling
diversification, eventual broadening of the product range, development of
sales in bottles and development of quality are therefore the key words of the
mergers we observed in Aquitaine. Thus, according to Christensen et al.
12
The qualitative approach carried out here does not allow us to go beyond the highlighting of stylized
effects that a later quantitative approach should lend support to.
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(2002), in fine, merger strategies in Aquitaine are less about the search for
economies of scale and to a greater extent concern the will to adapt to market
conditions which are sometimes volatile and within which New World pro-
ducers have triggered genuine ground-changing innovation.13
For this reason, reaching a “critical” size is considered as a means to grow
by uniting the co-operatives’ bargaining power against large retailers whom
they now wish to deal with directly. These strategies to increase size very often
involve the association of a large organization with one (or many) much
smaller ones. Increase in size is therefore not exclusive of composition effects.
The merger seemingly grants leadership to the largest organization, probably
considered as the best placed to energize the others without incurring the risk
of power struggles which are too symmetrical and therefore destabilizing for
the merged structure.
The elimination of competitors and the anticipation of an improvement in
the competitive position are also arguments put forward in favor of a merger,
with the expected beneficial results being seen ex post in reality. De facto, a
merger is preferred to an alliance or a commercial union because by eliminat-
ing structures, it is reputed to reduce the level of competition between co-
operatives, which, a priori, according to merger managers, a simple commercial
union cannot achieve. From this point of view, competition on the wine mar-
ket and competition for control of resources are linked. Indeed, a merger is a
means to reach these objectives by building upon a tighter control of the
vineyard, tipping the balance on whether to merge or not in its favor.
Obviously, it cannot guarantee there will be no competition at all as co-
operatives must still compete with independent organizations. However, it
does minimize competition between co-operatives which is not the case of a
commercial union since the latter brings together entities which remain
autonomous. Thus, accessing a broader market or at least being better armed
to compete in a more aggressive market is seen as the major stakes for
mergers.
Moreover, as major problems in co-operatives stem from their size which is
considered too small, a merger is the means to preserve sufficiently high
13
A groundbreaking innovation puts a product onto the market which can be seen as intrinsically “less
good” than certain products dominating the market at present. Therefore, for this reason, it cannot be
sold to the usual consumers. But it is simpler and more approachable and therefore establishes itself in a
part of the market which, up to then, did not reveal demand. Subsequently, the product improves to
overlap the preoccupations of the more demanding segments of the market and by doing so, helps to
remodel the whole market, thereby triggering an upheaval in it.
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v olumes in order to have the resources to carry out a number of actions with-
out which it would now be difficult to be well positioned on the market and,
at a minimum, maintain the bargaining power to sell products at a reasonable
price. A merger is also associated with a search for resources to fight back
against new, aggressive, commercial strategies. Indeed, co-operatives often do
not possess the financial resources to invest in quality, commercial communi-
cation and promotion. By merging, they can be more efficient in this field
than by a simple gathering of means through a strategic alliance.
A merger is therefore considered as a way to compensate for the obstacle of
spatial lock-in. As it is irreversible compared to the connective logic of the
commercial-alliance type, by gathering agents with potentially different inter-
ests under a single structure, it minimizes, a priori, problems of opportunism
induced by a simple alliance. Nevertheless, certain risks remain as mergers
between co-operatives or, otherwise, lead to “organizational upheavals”
(Samuel 2003).
Thus, in a first approach, we can bear witness to the role of territorial con-
straint in the decision to merge. As it limits the growth and development
potential of co-operatives’ activities in a context where size effects are crucial,
the territorial link forces organizations to go beyond an alliance logic and seek
a merger. This explains the unanimity of merged organizations’ managers we
interviewed regarding this ineluctability of the processes. Two of the manag-
ers, even if they represent co-operatives positioned on very different products,
went as far as to say that mergers represent “the future in the wine-co-operative
world”. A more refined analysis shows that this loosening does not rhyme
with a disappearance of the territorial constraint: in reality, it is more a ques-
tion of a re-dimensioning of the territorial scale of a co-operative’s action.
17.3 D
imensioning the Territorial Scale
of the Co-operative Action
Mergers are co-operatives’ favored way to recover room for maneuver hin-
dered by territorial constraint. However, in spite of the fact that they are justi-
fied by the will to break free of this constraint, the underlying logic reaffirms
their attachment to the territory. The re-dimensioning of the territorial scale
of the co-operative action is seen first of all in the complementarity of geo-
graphical and organized proximities during the choice of the right partner to
merge with. This re-dimensioning is then seen in the efforts engaged by the
merged co-operative to maintain and rebuild itself as a territorialized unit.
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17.3.1 C
omplementarity of Geographical and Organized
Proximities in the Choice of the Merger Partner
On one hand, a priori, geographical proximity intervenes in the choice of the

partner chosen to enter a merger with and this helps to maintain the territo-
rial attachment. On the other hand, the mechanisms used to prepare the
merger show that organized proximity is an essential complementary determi-
nant in the decision to commit.
17.3.1.1 A
Priori, Geographical Proximity Underlies the Choice
of the Partner
All cases of the mergers we studied are characterized by a unification of geo-

graphically close partners. This particularity stems from the fact that the co-
operatives in difficulty who initiate the search for a partner first turn to the
nearest co-operative except if there are historical enmities. Two reasons explain
this phenomenon. First, geographical proximity is a core element to relations
which are sometimes economic, like belonging to the same co-operative union
or the exchange of know-how (e.g., the same wine technician working in both
co-operatives), but also these relations are informal, linked to a family of
neighborly relations between members and, sometimes, between managers.
These relations, preexisting the merger, make it “natural” to seek a partner
nearby.
Second is the more “economic” reason: geographical proximity reduces
potential costs generated by the existence of several delivery and production
sites and simplifies relations, notably between members and managers. A
merger must minimize extra costs and even deliver economies of scale. Thus,
at the outset, the nearest co-operative appears to be the “natural” merger part-
ner de facto. Nevertheless, geographical proximity in the strict sense is not a
sufficient condition to unite since many mergers will not take place between
“the closest” organizations.
Admittedly, in the Aquitaine vineyards with a low co-operative density
(Landes, Pyrénées-Atlantiques), geographical proximity prevails as the factor
to choose a partner. In these cases, geographical proximity is the determining
element in the merger. In other cases, especially in Gironde and in Dordogne,
geographical proximity has played an important role but not a sufficiently
important one to explain the mergers. Other factors have come into play in
their completion.
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Ultimately, we cannot deny that geographical proximity plays an impor-

tant role since the mergers carried out in recent years fulfill this condition.
Nevertheless, distance alone cannot adequately explain these mergers.
17.3.1.2 P
roximity of Similarity at the Heart of the Commitment
to a Merger Process
The reasons given by the managers to explain the choice of a given merger
partner are in reference to the dimensions of organized proximity. The com-
mitment to the merger process is mostly determined by the existence of prox-
imity of similarity between the potential partners. A priori, it comes into play
from the moment the merger is envisaged but also during the merger process
itself via respective learning phases put in place to guarantee the success of the
operation (Table 17.3).
Firstly, in the Aquitaine co-operative context as in the co-operative world
in general, mergers take place between co-operatives. They have in common
their way of working which characterizes their status: de facto, belonging to
the co-operative milieu itself constitutes an element of proximity. Thus, at
least for the moment, they do not consider merging with non-co-operative
organizations. Moreover, with the exception of a merger between a wine co-
operative and a co-operative supplying cereal farms, the only mergers com-
pleted have been between wine co-operatives.
This last statement is less trivial than it may seem if we consider the hetero-
geneity of the organizations sharing the co-operative status, whether they
Table 17.3 The determinants of a commitment to merger

The initial partner Geographical
envisaged proximity
becomes the final influences the
partner choice of partner The final determinant
Yes: 6/7 Yes = 4/6 Co-operative members of the same
commercial union
Proximity of products: co-operatives making
the same AOC
No = 2/6 Better personal relations than with the
nearest co-operative
Co-operatives members of the same
commercial union
No: 1/7 No Initial partner chosen according to
geographical proximity but merger not
completed, choice of partner made because
of long-standing relations
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belong to the same sector or not. In this respect, the exception described
above is instructive. Despite a common co-operative culture, the organiza-
tions, beyond the fact that they belong to different sectors, had neither the
same structures nor the same internal working procedures, which certainly
caused difficulties. Thus the merger triggered a cultural transformation since
it implied moving from a “family way of working to one whose management
methods are inappropriate to the way small wine co-operatives operate”.
A contrario, belonging to the same sector strengthens the similarities but
does not guarantee that the union between wine co-operatives “goes without
saying”. The numerous merger projects between wine co-operatives which
never saw the light of day attest to this. Thus, belonging to the co-operative
world, and moreover to the wine co-operative world, most probably facilitates
mergers but it still remains that proximity of similarity does not suffice in
predicting with certainty whether the merger will go ahead or not.
A priori, proximity of similarity is a necessary condition to begin the merger
process. Nevertheless, the cases we studied show that it does not become a
sufficient condition, once the risks of “unnatural” partnerships have been
minimized. Indeed, the merger project only appears possible or worth consid-
eration when the “cultural” gaps are narrow, which confirms the idea that
across a merger, breaking free from spatial lock-in goes together with a loosen-
ing of cognitive obstacles too.
Consequently, many mergers are the result of a series of meetings enabling
the parties to know each other better and a number of test appointments to
“feel” whether there is affinity with the intended partner. It is the reason why
mergers are not completed with the geographically closest potential partner as
the geographical proximity does not compensate for cultural or organizational
distance. Thus, we have frequently been told that “knowing one another”, and
for that, often “learning to know one another”, is a vital pre-requisite for a
merger approach. In the same way, “very different ways of working” are
enough to break the desire to become partners and move to the final step: a
merger.
Henceforth, procedures which lead to most of the mergers we studied are
relatively heavy. With the exception of two cases (Table 17.4), the mergers
were preceded by audits and the setting up of commissions to analyze the
ways of working and the company’s results. Each of these procedures brings
together all the members of each organization, co-operative members and
employees, which results in making the grouping mechanisms slower and
more complex.
In our case, when the approach procedures did not take place, the recipro-
cal ignorance of the partners, and the absence of transparency which resulted
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Table 17.4 Similarity, learning processes and success conditions for merger
A posteriori analysis of
Processes prior Success/ the difficulties A posteriori analysis of the
to merger failure encountered conditions for success
Audits, Success: Difficulty to make those Prior existence of common
commissions, 4 who are doing ways of working (e.g.,
organized well—or who think commercial union). Do not
working they are—understand join a structure which is too
groups: 5/7 the benefits. Difficulty “ill”. Do not pass a limit, in
to convince the other terms of volumes, beyond
party that no site will which the structure becomes
close. Fear of being put too complex to manage.
far from the center of Generates strong
decisions communication tools
Failure: Problems financing the Do not make alliances with
1 project. Departures of partners too distant in their
co-operators way of working
No audits, Failure: Poor reciprocal Carry out an audit. Get to
simple 1 knowledge. Discovery know one another. Establish
situation once the merger was transparency regarding
analysis: 2/7 made of differences in decisions and strategy. Have
working methods and the same ways of doing
of problems. things and of thinking
Departures of about the product
co-operators
Success: None Approval from members
1 necessary. Generate strong
communication tools
from this, was analyzed a posteriori by the current managers as the essential
reason for the failure to merge. For examples we studied, even when the orga-
nizations know each other well, analysis and thinking procedures were put in
place to finalize the merger. Even when the thinking took place after the
action, and where, we were told, “you must not think too much as you risk
taking no action”, several meetings were set up.
Common “ways of doing things”, close working methods (such as work
times and salary systems) and similar viewpoints on the product therefore
appear as minimum guarantees to establishing confidence between the poten-
tial partners, activating learning processes with the goal of building the merger
process.
These journeys are often described as being chaotic: between those which
begin with the idea of a simple grouping and end up with a merger; those
which begin with the idea of a partnership with the co-operative which seems
the most natural fit, because the closest geographically, and which conclude
with co-operatives that were not considered at the outset; those which develop
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from a heavy process and those which are completed without too much
thought; and those which are carried out with a precise idea and others which
are done a little by a non-choice; the journeys leading to a merger are diverse.
If the choice of partners appears guided by a combination of forms of geo-
graphical and similarity proximity, mergers are also the opportunity to rebuild
a territorialized co-operative entity structured around the proximity of
belonging.
17.3.2 T
he Merger, the Opportunity to Rebuild
a Territorialized Co-operative Entity
The success of a merger requires going beyond prior learning, even if this is
thorough. The proximity of belonging therefore comes into play to analyze
the manner in which mergers favor the emergence of a new territorialized co-
operative entity: they bring about a redefinition of the rules and the local
compromises since from this belonging to a new entity, they reorganize the
proximity between actors who were historically distinct.
17.3.2.1 R
endering the Co-operative Organization Viable
Through a Rebuilding of Rules
By associating organizations which are often geographically near to each other

and which are frequently similar, but nevertheless with specific company cul-
tures, a merger provokes a redeployment of organizational resources. Merged
co-operatives have to (and will have to) go as far as an organizational homog-
enization in order to meet the performance objectives assigned to the merger.
Resource redeployment involves rules which, at least in the short term, will
ensure stability for the new structure: salary rules, quality management and so
on (Table 17.5).
In the examples we studied, several scenarios are ongoing: adopting the
rules of one of the partners, taking rules from each of the structures, redefin-
ing “as if starting from scratch”14 rules which for some will be new and for
others not. For some, that translates into a redefining of working methods:
new salary rules, new quality framework, setting up a profit-sharing scheme
for members, an incentive policy to take part in trade events, redefining
employees’ social status, creating an internal newsletter run by the employees
14
Term borrowed by a person interviewed.
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Table 17.5 Observable organizational changes post-merger

Production Specialization of sites by function: 5/7
sites Specialization in terms of production: 1/7
Site closures: 2/7
Salary rules Establishment of a new quality framework: 2/7
Establishment of a new rule via conciliation between the different
preexisting ones: 2/7
Extension of a specific working rule from one co-operative to the
partners: 2/7
Quality Quality and traceability development: 3/7
Employees Social status harmonization: 1
Redirecting employees’ positions (movement from administrative to
commercial): 2
Supervisory Imbalance in favor of the most important co-operators (% of
board volumes): 1/7
Miscellaneous Member involvement in the commercial activity via payment for
participation in trade events. Establishment of sales-based
profit-sharing schemes. Establishment of a company social
committee (Christmas party, internal newsletter, etc.)
and so on. For others, it was a question of taking what was good from each
co-operative according to the principle that “not all is good in an organisation
doing well and not everything is to be discarded from one doing badly”.15
The solution, if it does not always seem easy to put in place, resides never-
theless in conciliating differentiated forms of company culture, with varying
degrees of success and conflict. Moreover, this has led certain authors to say
that “mergers form ‘tests’ which reveal sustainability criteria, because it is nec-
essary to rebuild a collective project and the rules associated with it” (Chiffoleau
et al. 2005).
In all cases, mergers translate into a necessity to rebuild around a new
entity, securing a specific common adherence in order to establish a new ter-
ritorial attachment.
17.3.2.2 M
ergers Lead to a Rebuilding of Co-operative
Territorial Legitimacy
Mergers between co-operatives translate into an extension of their territorial

area. To a certain extent, this new spatial scale forces participants to redefine
their territorial legitimacy. If this redefinition leads to a rethinking of certain co-
operative governance rules, it does not put the co-operative pact into question.
Expression borrowed by a person interviewed.

15
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Firstly, in the co-operative framework, the changes inherent to a merger

take place in a collective decision-making and action-taking context where
respect for all the members’ representativeness is expressed. Most probably,
the latter is skewed by the influence of the key or dominant players, knowing
that a leadership role is generally well accepted since it is seen as being
dynamic. Respect for this principle implies (re) structuring the supervisory
board which must be done in a way that is not seen as unfair, knowing that
mergers, as highlighted in the first part, are carried out between organizations
with different human and economic weights. In some of the cases we studied,
the supervisory boards were at first seen as very unequal as regards the repre-
sentative weight of each co-operative in the new structure. Most of the time,
the flexibility granted during the formation of the supervisory boards led to
compromises which in turn ensured the merger was adhered to.
Secondly, the reconfiguration involves structural reorganizations with an
underlying issue of the future of the production sites. Their preservation
may be questioned, notably when one of the co-operatives is in an unman-
ageable technical situation and/or their functional role in the new organi-
zation is put into doubt. Because of the size effects it seeks, a merger is
often accompanied by the development of new functions (commercial or
service functions) alongside those of the traditional wine co-operative.
Henceforth, questions concerning the sharing and distribution of these
functions must be tackled. In the context of a merger, there is a great risk
that certain production sites will take “power” over the others, not so much
in terms of the preservation or disappearance of sites as in the concentra-
tion of functions. Indeed, we can suppose that distances can be an obstacle
to the closure of sites as they will engender extra costs in transport, for
example, or in capital assets which are inherent to the lack of appreciation
of the investments undertaken. However, this argument is modulated
according to the spatial distances separating the two partners and accord-
ing to the type of strategy favored by the new structure. For the moment,
the mergers carried out have only led to a small number of closed produc-
tion sites in Aquitaine.
On the other hand, a merger can translate into a concentration of strategic
functions in one site or in just a few. This question is fundamental to the place
of each co-operative in the merged organization and to the distribution of
functions between each site. Thus, in the cases we studied, we find particularly
strong attention given to the distribution of functions over the sites. Some
mergers have led to a specialization of sites, whether it be by product (each site
specializing in the production of a particular AOC wine) or by function (a site
specializing in production while another focuses on sales and administration).
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Other mergers have not modified their initial structural organization. Still oth-
ers in longer-established mergers have ended up abandoning production sites.
Thirdly and finally, reconfiguring resources involves relationships with
members. What happens to these members in the new organization? Ruffio
et al. (2001) identify two types of organization. A first type is based upon a
plan where the member is seen as means to achieve a certain level of economic
efficiency, provoking a change in the nature of the link with the member. On
the contrary, a second type builds on a strengthening of the co-operative’s
interface role between the co-operator and the market. “In this model, the
co-operative … is at the centre of a network built on a double organisation,
relational (with the member) and economic, whose relations with the terri-
tory are different. The first level maintains the local level while the second
operates in a larger territorial context (regional or inter-regional).”
While it is difficult to classify the mergers observed into one of the two mod-
els, especially because the groupings are recent, the second form seems to pre-
vail. However it is established in different ways. For some, the distribution of
functions or at least the internal reorganization of the structure is done with the
will not to lose links with the co-operators. In others, the reorganization induced
by the merger was not seen by the co-operators as a way to cement relations
between them and the structure and this led to co-operators leaving. For still
others, the question of the link with the co-operator was not addressed in this
way, either because the structure that was built did not fundamentally change
the link with the co-operator or because the link was considered above all in
terms of a capacity to pay the members better and that henceforth, the efficiency
of the structure (whose effectiveness cannot be predicted in advance) is the
essential condition in the preservation of the link. Henceforth, the departure of
members following a merger does not seem to result from a deliberate choice on
the organization’s part and therefore do not fall under logic of exclusion.
17.4 Conclusion
Thus, contrary to an image which is too widespread, mergers of wine co-
operatives are far from signing a death warrant to co-operative territorial
attachment. If this attachment turns out to be a constraint, it nevertheless
remains a significant and positive element in co-operative strategy. Admittedly,
this significance can be altered according to the vineyards studied. Thus, when
the co-operative has a near monopoly of the AOC, which is the case of a few
co-operatives in Aquitaine, the strategy of loosening the ties can lead to their
elimination, all the more so as it is easier to carry out in the absence of “close”,
competitors in all the senses of the term. A contrario, mergers with companies
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which are better equipped from a commercial point of view but further away
in terms of organized proximity can, once a learning process has been success-
fully completed, lead to a strengthening of the territorial attachment.
All these elements lead us to qualify the restrictive dimension of the attach-
ment, with our analysis showing that via mergers, co-operatives rebuild their
links to the terroir through an effective expression of the co-operative interest
with those of their members. The analysis of the merger processes in terms of
geographical and organized proximity allows us to appreciate the permissive
character of geographical and similarity proximities insofar as the proximity
of belonging alone can release the spatial, cognitive and organizational lock-
ins which threaten the sustainability of the co-operative structure. This con-
firms the idea that, to a certain extent, the proximity of belonging dominates
the other forms of proximity with which it combines in the merger process.
The “right merger”, enabling co-operatives to increase their influence and
position themselves in a better way cannot, for all that, free co-operatives
from ongoing issues of territory (maintaining small-sized farms or balancing
power with négociants) and trade (competitive positioning of the whole sector
in Aquitaine). If merging with close players solves certain problems, the ques-
tion of the limit of these strategies remains. Will the predictable strengthening
of the globalization movement in the wine sector force co-operatives to envis-
age alliances with players further away if their strategies move closer and closer
toward the world market? Therefore, in a context of increased concentration
in the wine sector, the question regarding the direction of change for these
co-operative organizations remains open.
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18
Diversity and a Shifting Power Balance:
Negociants and Winegrowers in Bordeaux
Sofya Brand
18.1 Introduction
In the beginning of the new millennium, the ways to make French wines
more competitive were at the center of debate as the industry was losing its
place on global markets. Concentration and integration of the very frag-
mented wine sector was widely seen as the most efficient way to cut costs, to
gain economies of scale and scope and, more globally, to follow the lead of
main foreign competitors (Berthomeau 2001; César 2002; Pomel 2006).
Since then some companies merged, some have been acquired, others gone
bankrupt. However, many companies not only managed to survive but also
preserved their independence. After all, as we will discover in this chapter,
winemaking in France has its traditions and particularities.
Bordeaux is one of the most notable examples. Diversity is the key word
when describing the winemaking industry of this region. “Bordeaux as a ter-
ritory created a platform for the generation of variety on an unprecedented
scale. … Bordeaux’s territorial identity depends more on an integration of
variety than in homogeneity” (Patchell 2011, pp. 41–42).
Diversity in Bordeaux manifests itself through wide range of products but
also various actors involved in making and marketing them. All those actors
have different strategies, internal organizations and complex relationship. The
very complex nature of regional’s wine sector is imminently rich of divisions:
professional, qualitative and territorial. Professional division—between grape
S. Brand (*)
Département MMS, Institut Mines Télécom – Business School, Paris, France

https://doi.org/10.1007/978-3-319-98633-3_18
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growers and merchants, while very present throughout the whole history of
Bordeaux as a wine region—helps in a manner to overcome two other ones.
In this chapter, we aim to focus on the essence of negociants’ profession
and its evolution. Given that nowadays some factors, which have played a
fundamental role in shaping wine production systems as well as relationships
between their actors, are no more that crucial (e.g. transport costs), we try to
understand why the value chain structure split between grape growers and
negociants persists and is presumably a part of Bordeaux’s performance.
Our analysis belongs to the tradition of historical institutionalism. Thus, to
understand the existing value chain structure in Bordeaux, we begin with a
brief historical review focused on merchants’ role in developing the industry,
then we dress a picture of what Bordeaux wine region actually is and finally
we focus on the different types of merchants present these days in Bordeaux.
18.2 Brief Historical Review

The modern history of Bordeaux as a wine territory has its roots in the Middle
Ages when in 1152 Eleanor, duchesse of Aquitaine, married Henry Plantagenet,
who two years later became King of England, and Aquitaine subsequently
became dependent on the English Crown. “Marriage and politics rather than
consumer demand first brought the wines of Bordeaux to England” (Colman
2008, p. 10). Bordeaux’s port was instrumental for the opening up of export
routes. “Geographic advantage put the Bordeaux wine producers in the
unusual position of enjoying greater renown abroad than at home” (Colman
2008, p. 11).
As all commerce was going through the port, it is the city and not the
region that gave its name to the wine. Merchants played a vital role in devel-
oping exports from Bordeaux. At times when goods mostly traveled by sea,
producers could not sell their wines directly and needed merchants to assure
the logistics. From the thirteenth century up to the French Revolution, the
development of the wine industry in Bordeaux was driven by the sea com-
merce first with Britain, then with Holland and after that with Antilles Islands.
During almost 500 years, the dependence on the English Crown not only
provided Bordeaux wines with a huge market but also assured preferential
treatment vis-à-vis main competitors from other ports (e.g. La Rochelle) and
wine producers from neighboring regions.1 And that is even despite that for a
Tax and Privilège de Bordeaux.

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Diversity and a Shifting Power Balance: Negociants… 365
long period of time wines from Bordeaux, the so-called clarets, were not of
high quality, hence they could not be stored or transported for long distances.
Merchants even had to blend them with wines from neighboring regions to
improve their quality bypassing protectionist measures lobbied by Bordeaux
vineyards’ owners.
In 1453, after the Hundred Years war was over, France got the Aquitaine
territory back and restored its rule over wine market in Bordeaux. As a result,
wine trade with England declined and British merchants gave way to Dutch,
Hanseatic and Breton ones. These new buyers needed different types of wine:
whites for distillation, sweet whites and reds fit for transportation on long
distances. Merchants from Holland settled in Bordeaux in order to oversee
operations and prospect supply market for better deals. They also introduced
new production techniques, and “new French clarets”, more quality wine,
which could also be stored for longer time, appeared in the seventeenth–eigh-
teenth century. The move brought fame to the region as a whole but also to
the separate local crus, that started gaining reputation. From now on some
wines originated from Medoc and Graves were identified by the name of vine-
yard’s owner or cru. The eighteenth century also saw Bordeaux and its wine
prospering, thanks to massive colonial trade traffic with Antilles Islands.
The French revolution marked a new period for the regional wine industry.
All tax advantages, which Bordeaux enjoyed for many years, were abolished.
As if this was not enough of the challenge, the cancelation of Privilège de
Bordeaux meant the region’s opening up to wines from neighboring vineyards
and other parts of France. Now, merchants were officially free to buy wines
from wherever they like. Merchants, who are usually quick to adapt to new
realities, used non-Bordeaux wines for their blends in order to improve qual-
ity, ensure consistency and adjust quantity. They were selling their branded
wines under Bordeaux name regardless of real origin of wines. Merchants’
warehouses were full of wine, even Grands crus were bottled in those ware-
houses until the middle of the twentieth century.
After the Revolution Bordeaux continued to develop its territorial identity
distinguishing itself from other wine regions by building up a qualitative
image of its wines. Three major factors contributed (Réjalot 2007). First, after
the revolution Bordeaux regional vineyard got precise delimitation. After
France has been divided into departments, Bordeaux wine region began to be
strongly associated with Gironde. Secondly, the concept of “chateau”—a
wine-producing estate using exclusively its own grape—started to spread in
Gironde from 1850s. Last but not least, Bordeaux Wine Official Classification
of 1855 of chateaux in Medoc and Sauternes that was drawn up for the
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Exposition Universelle on request of Napoleon III contributed to individual-

ization of Bordeaux and to its glory.
After defeating powdery mildew—the reason for the crisis in Bordeaux in
1850s—the second half of the nineteenth century was full of success for the
wine industry. The new railway linked Bordeaux to Paris and the Midi region,
and the arrival of a railroad to Gironde meant a huge improvement for local
infrastructure and logistics. It was also the time of big technical improvement
in grape growing and winemaking (Roudié 1994). Bordeaux wine industry
grew in terms of both exports and domestic sales, and it exported its wine-
making savoir faire to other parts of the world—a real proof of fame and
recognition. Bordeaux also signed bilateral tax agreements with many coun-
tries, something that was restricted before because of the legacy of the protec-
tionist policy of Colbert’s government.
In the last quarter of the nineteenth century, a pest called phylloxera put
abruptly an end to the prosperous business. It devastated vineyards causing
dramatic drop in local production, the whole French wine industry declined.
Bordeaux felt the impact immediately: wine commerce stalled, producers and
merchants were next to be ruined. As merchants were not able to get enough
wine from producers in Gironde, they brought them from other regions and
countries, which have not yet suffered from phylloxera (Spain, Portugal,
Algeria, Italy, etc.). Bordeaux thus became a large port importing wines.
During the crisis, merchants once again proved to be ready to go to great
lengths to avoid bankruptcy and so they used every possible way to make a
product that could be sold as wine. Produced using various techniques avail-
able at that time, very often this final product had nothing in common with
traditional winemaking. This was the time when wine could even be pro-
duced without grapes at all (Stanziani 2003).
The solution to protect vineyard from phylloxera was found by grafting
local vine with the aphid-resistant American species. The vineyards have been
replanted progressively and very quickly the situation changed dramatically
from limited supply to overproduction. This was due to several reasons
(Réjalot 2007): local production level was restored while the wine imports did
not stop; merchants continued to use artificial techniques to fabricate wine;
finally, during the crisis some markets have been lost as for example Argentina
which started producing its own wine.
This crisis came as a blow to winegrowers, putting them in a very tough
financial condition and opposing to merchants. As merchants were to blame
for overproduction and fraudulent techniques used to produce wines, the
power balance shifted once again. Winegrowers used the opportunity to con-
struct a legal foundation to protect their interests. That is how the controlled
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designation of origin system was initiated. As a first step, in 1911 Bordeaux

wine region was officially confined to Gironde, only wines produced in the
department could bear the name of Bordeaux. The process was not quick and
it is only in 1935 (after years of debates and intermediate laws2) that the
French Senate approved the bill submitted by Joseph Capus, senator from
Gironde. This law created the “Appellation d’Origine Controlée” (AOC), a
complex set of rules governing quality wines production in parallel to “Statut
viticole” regulating table wines segment at those times. For merchants new
legislation has changed a lot: they lost control of the product which passed in
the hands of winegrowers. It has also impacted Bordeaux as a region—the law
placed the production problems in the field of collective action rather than
individual one.
Times of turbulence continued as in 1929 the Great Depression gripped
the world economy. Demand of Bordeaux’s fine wines declined and in order
to keep the industry afloat wine producers increased production of cheaper
red wines and focused on domestic market instead. The strategy proved to be
challenging, as the segment was occupied by ordinary Languedoc wines. To
reduce risks an important part of Bordeaux’s vineyards was replanted in
whites, less affected by the crisis. From 1932 winegrowers who were earlier
reluctant to participate in cooperative movement started joining their efforts,
and in 1940 the region counted 51 cooperatives producing 15% of wine in
Bordeaux (Roudié 1994).
During the World War II, wine trade was hardly perturbed by German occu-
pation. After the liberation many merchants were questioned regarding their
collaboration with Nazis and the Vichy government. After the War Bordeaux
had to restore its wine industry in new conditions. The inter-professional
body—Conseil interprofessionnel du vin de Bordeaux (CIVB)—was officially
created in 1948, consolidating producers’ and merchants’ syndicates. New
Grands Crus were classified in 1953 (Graves) and in 1955 (Saint-Émilion). This
period also saw acceleration in cooperative movement: the number of members
continued to grow until 1970s. Progressively wines of Bordeaux returned to the
export markets, but sales recovery on national market was more important with
confirmed regional specialization in whites. After having outlived another crisis
in 1956, terrible freeze this time, Bordeaux region continued its development
switching to origin wines and improving production techniques. Things went
more or less smoothly until 1970s when abrupt speculative price jump followed
by considerable price decline caused serious financial difficulties. The chock was
Law of 1 August 1905; Law of 6 May 1919; Law of 22 July 1927.

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aggravated by growing competition from imported wines coming from the

European Union. This was a moment that changed a lot in winegrowers’ and
merchants’ relationship, as former once again saw the latter as the cause of
their trouble. The CIVB splitted because members representing winegrowers
quitted considering that the organization was incapable to manage the indus-
try and to solve the crisis. Later in 1976 the CIVB was reformed with estab-
lishment of parity in representation of winegrowers and merchants; its power
and functions were extended.
The lack of trust that poisoned the relations between main actors on the
market was fueled by a largely politicized and mediatized “Cruse scandal”,
which made headlines in 1973. Twelve merchants were accused in fraud and
fakery including upgrading of table wines into origin wines (AOC). This
scandal made some chateaux owners bypass merchants and start direct sales.
Also, it valued bottling in chateau instead of merchants’ warehouses—a move
to sideline the merchants from the production process and guarantee quality.
However, in practice quite often it meant mobile bottling lines belonging to
merchants traveling from one châteaux to another. Merchants’ positions were
undermined with the raise of “chateaux” popularity. Many unknown “petit
chateaux” came on the market replacing wines produced under merchants’
brand names. In 1970–1980 the merchants’ profession changed from blend-
ing and maturing wines to distributing different chateaux already finished and
bottled in the estates. The production of wines under merchants’ brands
declined.
However, in the 1990s facing the raising competition of the New World
branded wines on the export markets and raising demand for branded wines
from retail distributors, some merchants returned to their traditional role.
They started to invest more in their own brand production or in supplying
private labels to retailers. This activity needs stable relationships between mer-
chants and grape growers in order to assure constant quantity and quality
supply. However, actors of wine industry in Bordeaux do not usually frame
their collaboration by a written contract, as long-term relationships without
explicit contract engagement are very common.
The reason for the existence of institutions that regulate wine economy in
Bordeaux is the need to secure the shifting balance between winegrowers and
merchants as both parties were struggling to have an upper hand on the mar-
ket. Preserving balance between those factions was a key for the whole system
to compete with other territories and producers.
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18.3 D
iversity and Divisions in Bordeaux
Vineyard Now: Products, Actors,
Performance
With its 111,0003 hectares (ha), Bordeaux is the biggest wine region produc-
ing AOC wines. It represents 1.5% of the worldwide vineyard, 15% of the
total French vineyard and 25% of country’s AOC vineyard. It is planted
mostly with Cabernet Sauvignon, Merlot and Cabernet Franc in reds and
Sauvignon Blanc and Semillon in whites. Wine is fundamental for region’s
economy representing 78% of its agricultural production. Bordeaux produces
about 769 millions of bottles yearly, mostly red wines, which is 85% of its
total production. The region counts 65 appellations.
Bordeaux sells its wines in 150 countries all over the world for €3.65 billion
a year. It exports 42% of its production volume mostly in Europe (43%), Asia
(35%) and Northern America (12%). The wines exports from Bordeaux rep-
resent over one third of total French wine exports. Its five top destinations are
China, Belgium, the United States, the United Kingdom and Germany. In
France 46% of Bordeaux wines are sold in supermarkets, 9% in hard dis-
counts and 45% in wine shops, on-trade market, online and so on.
Bordeaux wine production industry is a very fragmented one: it counts
6300 winegrowers with an average farm size of 17.6 ha, 33 cooperatives with
3 unions, 300 merchants and 82 brokers. Twenty-five organizations for
defense and management (ODG) represent the interests and self-govern the
65 appellations. As seen above, the CIVB, created in 1948, is a central regula-
tion body of wine industry in Bordeaux. It has the role to unify and balance
divergent interests of all actors. It has four missions: economic, marketing,
technical and representation of Bordeaux’s interests on national and interna-
tional political arenas (Smith et al. 2007). CIVB is the biggest inter-professional
board in French wine industry with its total budget reaching almost €36 mil-
lion (including member’s fees and EU subsidies).
Bordeaux wine industry has several divisions that are mediated by various
institutions. The industry needs institutional mediation firstly to balance the
power between winegrowers and merchants who have always struggled for
control on markets, margins, product, influence and so on. They also repre-
sent two opposed product concepts: chateau wines versus branded wines. As
mentioned above in 1970s chateau concept prevailed over the traditional
2016, source: Conseil Interprofessionnel du Vin de Bordeaux.

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approach when merchants used to sell the majority of wines under their own
names. Currently, only few Bordeaux brands are known internationally, with
Mouton Cadet being the most known example. The brand owes its popularity
to its elder brother—Chateau Mouton Rothschild. On the national market
Castel is an undisputed leader with the brands such as Roche Mazet, Cambras,
Ormes de Cambras, Baron de Lestac, Vieux Papes, La Villageoise and so on.
During the last 25 years Bordeaux wine industry undergoes concentration
process on both sides. Winegrowers have seen their number to divide by more
than twice and the average farm size to grow from 7 to 17 ha. Merchants and
cooperatives have been also consolidating over this period (Pesme et al. 2010).
However, the industry remains very fragmented and thus the coordination
between winegrowers and merchants is a very critical issue.
Another notable feature of the industry is the quality split: Bordeaux is
mostly known for its top wines that only represent a tiny part of regional wine
production. These luxury wines are able to find their clients almost at all mar-
ket condition. However, most of the industry winegrowing estates are occu-
pied producing ordinary wines, which are heavily dependent on market
fluctuations. According to Jean-François Moueix,4 one of the most influential
merchant in Bordeaux: “The difference was such big that I couldn’t see what
could allow normal coexistence in the long term. The palaces cannot prosper
nearby favelas.” At the same time the whole region takes profit from the aura
of these wines. The quality division is represented by different kinds of catego-
rization and hierarchization of thousands of different wines produced in
Bordeaux. Different types of product identification juxtapose: AOC, brand,
chateaux and so on. Three main classifications represent the region’s patri-
mony: Bordeaux Wine Official Classification of 1855, The Graves
Classification and The Saint-Émilion Classification. All three together unite
over 100 estates. These top wines are mainly distributed internationally—80%
exported, according to the Union of Grands Crus, which is much above the
average Bordeaux wine exports figures.
Finally, Bordeaux is divided into many wine-producing territories.
Bordeaux is actually represented by 65 appellations grouped together in 6
regions: le Medoc, Blaye et Bourg, le Libournais, l’Entre-Deux-Mers, Les
4
Interview, Christian Seguin “Bordeaux partout, voilà la Vérité” in the newspaper Sud-Ouest, Thursday
14 June 2007, p. 7. Original version: “Le fossé était tel que je ne voyais pas ce qui pouvait permettre une
cohabitation normale, de longuedurée. Les palais ne peuvent pas s’épanouir à côté des favelas. Cet état de
fait était intolérable. La comparaison entre lesdeux mondes de Bordeaux avait quelque chose d’indécent,
d’inacceptable. Alors je me dis qu’il y a toujours un canyon, mais au moins, de l’autre côté je vois une vie
à l’endroit où l’on entrevoyait la désertification. Je trouve qu’il est bien queles grands crus puissent servir
d’exemple, de référence à un territoire qui a échappé à la fossilisation.”
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Graves et Sauternais. The biggest and most powerful appellations are Bordeaux
and Bordeaux Superieur; they represent about a half of the total vineyard area
and can be produced all over Bordeaux wine region.
These self-governed wine territories are very heterogenic in terms of reputa-
tion, production volume and type, organization, aspirations and market suc-
cess. Vineyard prices and their evolution in diverse appellations reflect
differences between them. Vineyards priced above €200,000/ha (Saint-
Émilion, Pessac-Léognan, Pomerol, Margaux, Saint-Estèphe, Saint-Julien and
Pauillac) regroup 10% of the vineyard surface but 75% of its value (compared
to only one third in 1991). Average appellation vineyard price in Gironde has
grown by one quarter between 2000 and 2016. While top wines are experi-
encing a price hike, some appellations were trading at much smaller price in
2016 as opposed to 2000 (Table 18.1). Sauternes, for example, suffered a lot
from road safety legislation: drivers started sacrificing aperitifs and digestives
(Sauternes is usually consumed as such), hence creating a sharp fall in demand.
The diversity of Bordeaux wines can be considered as a market advantage as
it is satisfying the demand for diversity and penetrates all market niches. On
the other hand, it does not always aid the clear positioning and commercial
strategy. Moreover this quite complicated hierarchized offer, which is not nec-
essarily expressed by clear price positioning, cannot always be easily decrypted
by consumer because it requires specific knowledge.
Is complicated Bordeaux system performant? Do the institutions in place
assure its longevity? There are no standard indicators for measuring perfor-
mance knowing that a wine-producing region cannot be considered from a
pure economic point of view only but is a complex social organism having
different challenges in front of it. The answer is probably yes, but not for
everyone. Some less renowned appellations had to join their efforts creating
associations (Cotes de Bordeaux or sweet wines) to compete on the national
and international markets and improve their bargaining power vis-à-vis
Table 18.1 Vineyard price in Bordeaux rouge equivalent

AOC 1991 2000 2016
Bordeaux rouge 1 1 1.0
Bordeaux blanc 0.8 0.7 1.0
Pauillac 9.2 7.8 125.0
Fronsac 3.1 2.3 2.2
Saint-Émilion 6.5 4.8 14.4
Medoc 2.5 1.8 3.1
Sauternes 7.3 2.5 2.2
Gironde total 2.2 1.7 6.4
Source: Safer
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b uyers, supermarket chains. The diversity, which is an important asset of

Bordeaux, lacks strategic dimension. The same conclusion can be drawn while
reading “Plan Bordeaux Demain”, Bordeaux wine industry development plan
launched by CIVB in 2010.5 Without contesting the fundamental principles
of Bordeaux vineyard functioning, this document points out major failures of
Bordeaux wine industry: missed opportunities on national and global markets
and weakening of the brand “Bordeaux”. As a main remedy the plan proposes
to focus on promising markets and quality segments and to dispose of entry-
level wines, creating at the same time conditions for effective interplay between
actors.
18.4 L a Place de Bordeaux: How Does Market

Function Between Winegrowers
and Merchants
The process of winemaking, which turns grapes from a vineyard into a bottle
on a shop shelf or a restaurant table, can be divided into five stages: vine grow-
ing, winemaking, blending and aging, packaging and marketing. This process
is complex and involves a large scale of expertise and knowhow. Traditionally
in Bordeaux the division between these steps has been quite net: first two were
under grape growers’ responsibility and the rest belonged to merchants.
Nowadays the division between two professions has started to blur due to the
ongoing backward and forward integration process. Moreover, family ties in
the wine industry in Bordeaux are very strong and mix the interests of many
businesses. Nevertheless, the traditional way of dealing with each other is still
in place: Place de Bordeaux.
What is the famous “Place de Bordeaux”? It is a “market place where, with
the brokers’ mediation, the variety produced by winegrowers is exchanged
into the merchants’ hands” (Patchell 2011, p. 54). Merchants play a central
role in integrating Bordeaux’s variety. According to the Association of
Bordeaux Wine Merchants, the Union des Maisons de Bordeaux (UMB), 300
merchants sell about 2/3 of wines produced in Bordeaux. On the one hand,
merchants collect different wines to produce their own blends under their
brand names or private labels. On the other, they create more or less large
portfolios of different estate wines and appellations and distribute them
New strategic plan “Bordeaux, ambitions 2025” has been launched in 2018.
5
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g lobally. This core merchants’ competence consisting of selling a range of

competing products representing diverse estates of the region makes differ-
ence between Bordeaux market place and most other wine regions.
As we have seen above, there is a quality divide between products produced
in Bordeaux, so there are two different markets, each of them involving wine-
growers, brokers and merchants. The key element of the Bordeaux market
place is its well-established futures market—another unique feature of
Bordeaux in regard to the value chain. This is a complex social mechanism
based on reputation and market evolvement expectation which makes
Bordeaux merchants and brokers inherent component of Grands Crus distri-
bution. Wine futures are a purchase of wine 18–24 months before release
while it is still aging in barrels. Futures market actually concerns approxi-
mately 250 to 5006 chateaux depending on the quality of the year and market
condition (Chauvin 2009), mostly Grands Crus Classés, but not exclusively.
Patchell (2011) proposes the acceptance to the futures market as criteria to
distinguish modern Grands Crus from “small chateaux”. The “en primeur”
campaign is held in the spring several months after harvest. It starts by profes-
sional tastings organized by producers’ associations where the wines are noted
by critics, journalists and market professionals (Hadj Ali et al. 2010). After
tastings, producers fix prices (Chauvin 2009), communicate them to mer-
chants via brokers and make them proposals in terms of quantity. These quan-
tities are allocated taking into consideration the hierarchy of the merchants on
the market and the past relationship between producers and merchants. Based
on the notes, expectations regarding price evolution and the estimated demand
from their clients, merchants place their orders paying them often more than
a year in advance. Some most exclusive Grands Crus release their wines in
several tranches especially when demand is particularly high selling successive
tranches for a higher price. There are several advantages for both sides, pro-
ducers and merchants, in the wine futures (Chauvin 2009). Producers benefit
from fixing the price more or less autonomously (release price and recom-
mended price), from advance payment and from the merchants distribution
net that they use without any cost. For merchants it is an opportunity to
secure their stocks, especially of the rare and most valued wines and to make
profits, more or less important depending on price evolution. In some years
when the market price is lower or equal to the release price, they make a loss.
Lately with the development of online sales, private customers got an easier
access via merchants to the wine futures promoted as an alternative financial
In 2012 Pauillac first cru Chateau Latour left the en primeur system.
6
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450
400
350
Price, euro/hectolitre
300 Bordeaux/Bordeaux
sup.
250
Medoc
200
St Emilion/St Emilion
150 Grand Cru
100
50
0
01/02
02/03
03/04
04/05
05/06
06/07
07/08
08/09
09/10
10/11
11/12
12/13
13/14
14/15
15/16
16/17
Campain
Fig. 18.1 Bulk wine price fluctuations in Bordeaux. (Source: FranceAgriMer)
investment. This guise of Grands Crus fuels this traditional practice. Futures
market is a key element of the existence of the Bordeaux wine market: “if the
‘en primeur’ market ceases to be, then Grands crus brokers will disappear.
Campaign brokers will remain but they will not arbitrate mechanisms funda-
mentally. In Bordeaux all is judged and done in relation to the purchase.
Futures market is consubstantial to merchants’ existence itself. Middlemen
are its lever. This is an ancestral system that could seem closed, but which
shouldn’t be dismantled.”7
The quite specific futures market of Grands Crus Classés does not exist
autonomously; it is tightly related to the overall Bordeaux wine market in a
sense that merchant’s position in Grands Crus business can influence its over-
all market power and potential investment attractiveness. Although en
primeur market plays a very significant role, the majority of Bordeaux wines
are not sold over this system and pass through different value chains. Firstly,
7
J.-Fr. Moueix, interview with Christian Seguin “Bordeaux partout, voilà la Vérité” in the newspaper
Sud-Ouest, Thursday 14 June 2007, p. 7. Original version: “Si les ventes en primeur disparaissent, les
courtiers des grands crus disparaîtront. Il restera des courtiers de place qui feront de la vente de place,
mais qui n’arbitreront plus les mécanismes en profondeur. Or, à Bordeaux, tout se juge et se réalise par
rapport à l’achat. Les primeurs sont consubstantiels à l’existence même du négoce de place de Bordeaux.
Les courtiers en sont le levier. C’est un système ancestral qui peut sembler fermé, mais qu’il ne faut pas
démonter.”
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grape growers can act independently and market their wines directly. They
can also sell their harvest to a cooperative, which can also market wines on its
own. However, more often they all sell their wines to merchants. In this case
the wines they supply can be either contracted or sold on the spot market (in
bulk or bottled). Bordeaux wines offer vary considerably from year to year in
terms of quality and quantity. If on the futures market the price is fixed by the
producer, on the spot market it is regulated by the balance of the offer and the
demand. The variability of quality, quantity and price affects the relationships
between actors, making them quite tight in the situation of overproduction or
scarcity. The following chart (Fig. 18.1) shows bulk wine price fluctuations of
some AOC in Bordeaux:
The price fluctuations which have a direct effect on the grape growers’ and
merchants’ income can be so important that they can provoke serious con-
frontation between actors. In such cases CIVB or appellation syndicates have
to intervene. The inconsistency of the spot market deals is a main preoccupa-
tion of all actors and governing structures.
18.5 Typology of Bordeaux Merchants

Bordeaux’s merchants control about 70% of wines produced in the region.
Despite the fact that there are about 300 merchants, only 46 of them perform
94% of the total business and the list of who is really in charge can be nar-
rowed down further (Table 18.2). Only two merchants (Castel and Johanès
Boubée) contributed over one-third to the total Bordeaux merchants’ turn-
over in 2014, making over €700 million each (even more if we consider Castel
together with the merchants that the firm controls (Oenoalliance, Barton &
Guestier, Barriere)).8
Table 18.2 Merchants’ concentration in Bordeaux

Turnover, million euros Number of firms % of total turnover
>75 10 50
35–75 20 31
15–35 16 13
Total 46 94
Source: CIVB “Vin de Bordeaux: repères économiques”, June 2014
8
Unlike the majority of merchants in Bordeaux, the portfolio of these two companies is much diversified
and the wines from Bordeaux represent less than a half of it.
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All these firms represent a much heterogeneous community in many

aspects. Many of them are long-established dynasties (Butel 2008) with
British (Barton, Johnston, Lawton, etc.), German (Schröder et Schyler,
Eschenauer, Kressmann, etc.) or Dutch (Beyerman, Mahler-Besse, Quien,
etc.) origins. Others represent families with wine commerce traditions from
Corrèze (Borie-Manoux, Moueix, Horeau-Beylot) which entered Bordeaux
wine business mostly in the beginning of the twentieth century; there are
some more recent entries with no family wine tradition at all—Castel that has
become an international giant is one of the most important examples—and
finally there are some recently appeared companies trying to occupy available
niches.
The difference lies not only in the origin of these firms of course but also in
their size, market strategy, relationships with winegrowers, financial and orga-
nizational structure and so on. They can present different level of backward
integration. Total backward integration when merchants produce wines form
their own vineyards or buy grapes from grape growers is very rare in Bordeaux.
Some merchants own vineyards via their wine-producing estates, but their
production is not used to produce merchants’ commercial brands. More often
merchants buy bulk wine and then blend and age it or they buy already bot-
tled wine and distribute it as it is.
Table 18.3 Typology of negociants in Bordeaux: variables

Domain Variables
Size, structure and Turnover, number of employees
value chain Number, type and geography of sites and subsidiaries
positioning Backward or forward integration
Grands Crus Classés proprietors
Added value, Stock rotation
Distribution Main clients: large retailers or HRC (hotels, cafés, restaurants)
or wholesalers or specialized stores or private customers
National market or export
Product portfolio Specialization in Grands Crus Classés, chateaux, brands or
private labels; bulk or bottled
AOC or table wines
Bordeaux or other regions, other products in portfolio
Finance Shareholders number, type (cooperative, private, wine and
spirits or other industry, institutional) and geography
Participation in mergers and acquisitions
Gross profit margin, net profit margin, current ratio,
gearing, acc. receivable, acc. payable, financial autonomy
ratio, return on capital employed
Supply Grapes, bulk or bottled wines
Suppliers: independent grape growers, cooperatives, own
vineyards; long-term contract practice
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Considering all these differences, we tried to classify merchants in order to

identify their business models. Our typology is based on the database that
joins quantitative and qualitative data we produced by our own survey (ques-
tionnaire and interviews), open sources and financial data from Diane and
Zephyr databases by Bureau van Dijk. Based on the data availability, 92 mer-
chants have been analyzed; the majority of them are members of UMB.9 The
typology was made using data analysis techniques: multiple correspondence
analysis and hierarchical cluster analysis. The variables we used characterize
the relationships between merchants and their resource suppliers. We con-
sider four main types of resources (Jullien and Smith 2008): demand, wine,
finance and labor.10 The following table summarize the variables used
(Table 18.3).
One company has been excluded from data analysis because of its specific-
ity. Maison Johanès Boubée, merchant acquired in 1999 by Carrefour group,
its unique shareholder and client, all in one. So it cannot be correctly com-
pared to other merchants and represents a class in itself. With headquarters in
Bordeaux, this is one of the three biggest actors on the French wine market.
In 2014 its turnover amounted to €772 million and the volume sold was 300
million liters. For Carrefour group, it exercises several roles: wine sourcing,
bottling, central buying service for bulk and bottled wines, wine logistics in
France. Oriented on private labels production, Johanès Boubée has seven sites
all over France and deals with all French wines, Bordeaux wines representing
28% of the total volume. It also produces spirits and syrups, which represent
about 5% of the total volume. It has a quite low export activity. This is not a
classic representative of the Bordeaux merchants and it is not directly involved
in competition among them. Its competition field lies more on national level
between other distribution chains’ central buying services.
Other 91 companies have been distributed between 7 groups (Table 18.4).
It is interesting to compare this typology with “winning models” identified
by CIVB in its strategic plan of industry development discussed above. The
plan identifies three main models:
1. Big operators having large diversified portfolio in “fun” (€2–6/bottle shelf

price) and “exploration” (€6–20/bottle) segments with the turnover over
€500 million.
9
We excluded three companies’ members or former members of UMB because spirits and not wine rep-
resent their main focus.
10
Considering the unavailability of the employees’ related data for the majority of analyzed firms, it was
not included in data analysis.
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Table 18.4 Typology of negociants in Bordeaux: results

Number
Group of firms Description
1 5 Large merchants of Bordeaux, with the turnover more than €50
million, belong to this group. These companies are specialized in
their own brands or private labels production. They are often
backward integrated, some own vineyards. Their product range
offers not only Bordeaux wines but also wines from other
regions. They are present on national and international
markets. Some of them have good financial performance, some
more modest. However, the majority of them have a little resort
to bank credits in order to finance their growth
2 3 The companies of the second group are of important size and
superior financial results. They are specialized mostly in
distribution of higher-range wines, including Grands Crus
Classés. They sell them on the global market: France and export.
These companies have very little production activity but
important stock. They own renowned chateaux or are their
subsidiaries
3 15 This group unites quite big merchants with no specialization,
often subsidiaries of other merchants. They have a mixed
product range—own brands, petits châteaux and sometimes
Grands Crus—and important production activity. They are
present in all distribution channels. Their financial performance
is not stunning. The use of bank credits is quite important
among these firms
4 9 This group represents financially successful merchants of
important size. They have significant production facilities, often
multiple sites, proceed by external growth strategy. Their
product portfolio is diversified and they are proactive on the
market. Export market oriented, on national market they are
present in different distribution channels
5 28 In this class little but financially stable companies appear. In terms
of structure, they are independent and family owned. They do
not have a large stock. They offer “small chateaux” to
wholesalers on national market
6 9 These are very little companies owned by wine producers and
they specialized in marketing of their own products
7 22 This last group represents outsiders among merchants. Mostly
little family owned companies with high level of bank debt and
poor financial results
2. Companies of more modest size but still big with the turnover over €100
million dealing with “exploration” category and having more focused port-
folio than the previous group.
3. Grands Crus specialists with the turnover €20–100 million, financially

healthy in terms of capability to finance important stock, having good
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clients portfolio to whom they offer high standard services and range of
products.
Obviously, actual state of things identified by our typology is far enough

from these profiles. Some companies indeed meet perfectly these “winning
models” profiles, but a lot just survive. At the same time other competitive
models look promising, such as some little companies dealing with niche
markets. Given the rise in popularity of modern distribution channels, such
as online sales for example, as well as easier and targeted access to consumers,
there is a room for various models able to distribute variety that Bordeaux
produces.
18.6 Conclusion
To conclude we would like to cite again Jean-François Moueix11: “Diversity
makes the wealth of Bordeaux. Willing to proceed by concentration would be
an enormous mistake. It would kill the distribution. Omnipresence of prod-
uct all over the world is an imperative. Bordeaux, Bordeaux, Bordeaux every-
where.” This point of view can be questioned of course. Nevertheless, Bordeaux
wine region represent a very complex production system with many divisions
to settle. It is populated by much atomized though concentrating actors on
both sides—production and distribution. They propose on the global market
an heterogeneous product portfolio with rather complex identification juxta-
posing several attributes: appellation, brands, classifications and so on. While
generally producers control the product, they do not control distribution and
on the contrary merchants who control distribution do not control produc-
tion. Therefore, coordination between them and the whole production system
governance remain the issue of critical importance. While divide between
grape growers and merchants is still on the agenda, it has started to blur, as
many grape growers set up their own commercial companies as well as mer-
chants acquire vineyards. Also, socially these two professional groups are often
linked by family or financial ties.
J.-Fr. Moueix, interview with Christian Seguin “Bordeaux partout, voilà la Vérité” in the newspaper
11
Sud-Ouest, Thursday 14 June 2007, p. 7. Original version: “C’est la diversité qui fait la richesse de
Bordeaux. Vouloir procéder à des concentrations constituerait une énorme erreur. Ce serait nécroser une
distribution. L’impératif c’est l’omniprésence du produit dans le monde. Bordeaux, Bordeaux, Bordeaux
partout.”
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380 S. Brand
References
Berthomeau, J. 2001. Comment mieux positionner les vins français sur les marchés
d’exportation? Rapport remis au ministre de l’agriculture.
Butel, P. 2008. Les dynasties bordelaises: splendeur, déclin et renouveau. Paris: Perrin.
César, G. 2002. L’avenir de la viticulture française entre tradition et défi du Nouveau
Monde. Rapport d’information n° 349 (2001–2002) de M. Gérard CÉSAR, fait
au nom de la commission des affaires économiques, déposé le 10 juillet 2002.
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Chauvin, P.M. 2009. Le marché de réputations. Cadres, chiffres et entrepreneurs de répu-
tation sur le marché des Grands Crus bordelais LAPSAC. Bordeaux, Université
Victor Segalen Bordeaux 2. Doctorat en sociologie.
Colman, T. 2008. Wine politics: How governments, environmentalists, mobsters, and
critics influence the wines we drink. Berkeley: University of California Press.
Hadj Ali, H., S. Lecocq, and M. Visser. 2010. The impact of gurus: Parker grades and
en primeur wine prices. Journal of Wine Economics 5 (1): 22–39.
Jullien, B., and A. Smith, eds. 2008. Industries and globalization: The political causality
of differences. Basingstoke: Palgrave Macmillan.
Patchell, J. 2011. The territorial organization of variety: Cooperation and competition in
Bordeaux, Napa and Chianti Classico. Farnham/Burlington: Ashgate.
Pesme, J.-O., M.-C. Belis-Bergouignan, and N. Corade. 2010. Strategic operations
and concentration in the Bordeaux-Aquitaine region. International Journal of
Pomel, B. 2006. Réussir l’avenir de la viticulture de France. Propositions présentées
par Bernard Pomel, préfet, chargé de la coordination nationale des comités de
bassin viticole pour la mise en oeuvre d’un plan national de restructuration de la
filière vitivinicole française, mars 2006.
Réjalot, M. 2007. Les logiques du château: filière et modèle vitivinicole à Bordeaux,
1980–2003. Pessac: Presses universitaires de Bordeaux.
Roudié, Ph. 1994. Vignobles et vignerons du Bordelai: 1850–1980. Talence: Presses
universitaires de Bordeaux.
Smith, A., J. de Maillard, and O. Costa. 2007. Vin et politique: Bordeaux, la France,
la mondialisation. Paris: Sciences Po, Les Presses.
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mmorag@uchile.cl
Part IV
Backward Vertical Integration
Coord. by Georges Giraud
mmorag@uchile.cl
19
Introduction: Outsourcing Versus
Integration, a Key Trade-Off for Wine
Companies?
Georges Giraud
In all European wine-producing countries, with a long history of winemak-

ing, the wine industry is composed of numerous, highly skilled actors apply-
ing outsourced or integrated business models according to their individual
experience and know-how. The factors of success and profitability are multi-
dimensional and the principal scientific challenge is to disentangle such fac-
tors, as far as it is possible (Maumbe and Brown 2013). Among European
wine producers, French and Italian estates achieved the best profitability ratios
from 2002 to 2008, regardless of the indicator used (Pappalardo et al. 2013).
Available European data sources do not provide breakdowns at the regional
level, and profitability may vary from one wine-producing area to another
according to the notoriety of the terroir.
Although outsourcing is generally considered, within the management sci-
ence literature, as a useful tool for increasing efficiency by reducing the agency
costs, it has been found that companies processing top-quality products are
more likely to integrate the stages of working out (Kremic et al. 2006; Fill and
Visser 2000). Other factors to be considered are the risk of loss of core knowl-
edge and increased transaction costs (Kremic et al. 2006). The main reason in
favor of integration is that it allows at keeping quality under control along all
stages of processing from raw material to sales. Quality control is acting as a
key factor in meeting the expectations of the market’s premium segment. In
the wine sector both practices occur in various countries and vineyards. Two
G. Giraud (*)
AgroSup, Graduate School of Agronomy and Food Science,
University Bourgogne Franche-Comté, Dijon, France
e-mail: georges.giraud@agrosupdijon.fr
https://doi.org/10.1007/978-3-319-98633-3_19
mmorag@uchile.cl
384 G. Giraud
main categories of wine grape growers exist: those who focus on grapevine
cropping alone and those who also integrate the winemaking, whom we will
refer to here, respectively, as viticulturists and winemakers. Several recent
publications found that profitability increases with winemaking process inte-
gration (Cadot 2013; Castriota 2018; Corsi 2013).
The effect of terroir is based on pedo-climatic conditions (Atkinson 2011;
Gade 2004) in combination with local winemaking practices and traditions.
We can thus assume that terroir acts on firms’ strategies not at the parcel level
but at the appellation’s one. In the forthcoming case studies, the contributors
will investigate whether the choice between integrating winemaking process
versus outsourcing depends upon the land availability where the wine estate is
located. This assumption is supported by the findings of Cross et al. (2011),
who found that the influence of terroir on vineyard prices (in the Willamette
Valley of Oregon) was more strongly related to appellation designations than
to locational attributes such as slope, aspect, elevation or soil type.
The bond between terroir and high-quality wine is not always well estab-
lished through the appellation labeling scheme. With respect to grape pro-
curement, brokers are said to be key and efficient substitutes for merchants in
monitoring the winemaking process on the estates (Fares 2009). These find-
ings suggest that, both upstream and downstream from the winemaking stage,
outsourcing may be a factor of improved efficiency within the wine industry,
especially for those among the companies employing a strong branding
strategy.
Dilger (2009) found that in Germany, winegrowing estates led by salaried
managers are more likely to bottle and sell wines of higher quality at higher
prices and in lower quantities than estates led by their owners themselves. As
a corollary to this finding, we may expect to find small winegrowers produc-
ing grapes of medium quality more prone to contract with external winemak-
ers, whereas small growers who are able to produce top-quality wine should
integrate added value through bottling on their own estates.
Visser and de Langen (2006) have pointed out that, in the case of Chile,
the efficiency of a wine sector, within a given district, is strongly related to
close networking and cooperation between that district’s companies. This
means that the outsourcing dilemma is not a simple to make or to sell deci-
sion for the core producers focused on winemaking but also includes R&D
facilities, training facilities, the providers of dry materials, distribution chan-
nels and wine tourism activities (Visser and de Langen 2006).
These findings are congruent with those of Amadieu and Viviani (2011)
who have demonstrated that a high level of intangible expenses has a positive
impact on wine companies’ performance by increasing expected profit and
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Introduction: Outsourcing Versus Integration, a Key Trade-Off… 385
reducing variance risk. In addition, the authors indicate that, when R&D
expenses are low in the wine industry, intangible expenses are mainly related
to promotion and marketing and tend to be outsourced to independent mar-
keting agencies (Amadieu and Viviani 2011).
Between integrating winemaking process in the estate and outsourcing to
traders, a medium business model is provided by the cooperative scheme. The
winegrower members of a cooperative delegate the winemaking process to this
cooperative winery, in which they are collectively owners. They can focus on
vine growing and use contractual commitment to sell their harvest to the
cooperative as fresh grape or must. Cooperatives are key actors in the wine
industry.
Market access for small grape-wine growers is often considered by literature
through the case of cooperative wineries (Del Campo et al. 2009). Cooperatives
are an alternative business model between small independent estates, making
their own wine, and grape-wine growers selling fresh harvested grape or must
to traders. This medium position between integration and outsourcing of
winemaking seems to perform well for medium-range wines and innovative
wines but does not fit with top-quality wines such as premiers crus or grands
crus (Chiffoleau et al. 2007).
The literature review carried out here points to the fact that while outsourc-
ing is considered to be a basic principle of good management for modern
companies, it is sparsely applied in the wine industry with respect to the core
stage of winemaking, although it is likely to be used for peripheral activities.
Given that the majority of wine estates are not loss-producing, our goal is to
study whether outsourcing or vertical integration of the wine companies is a
factor of growth and profitability.
This objective will be achieved thanks to the oncoming four case studies.
The case study made by G. Giraud and A. Diallo focuses on the effect of ter-
roir on integration versus outsourcing strategies adopted by winemakers in
Burgundy region, where the mosaic of vine parcels, so-called Climats de
Bourgogne, is quite salient. The authors indicate that choosing between stay-
ing winegrower versus becoming a winemaker mainly depends on the terroir
where the wine estate is located and influences its profitability. Clustering of
wines based on Appellation d’Origine Contrôlée leads to village-based wine seg-
mentation and also depends on export capability and distribution strategy at
estate level.
The second case study explores the strategies chosen by cooperative compa-
nies in order to secure wine or grape procurement and analyzes how these
choices influence the wine industry organization and profitability, since land
regulation often aims at preserving the already existing winegrowers, instead
mmorag@uchile.cl
386 G. Giraud
of facilitating the incoming of new players, through planting rights scheme.

The text from A. Alonso Ugaglia and J. Cadot pays special attention to the
effect of financial constraints and strategies on vertical integration in wine
French cooperatives. The authors clearly indicate that the proneness to allevi-
ate risk and keep costs under control leads to vertical integration, whereas the
literature review, as seen before, argues toward outsourcing.
The third case study from Pomarici, Barisan, Boatto and Galletto depicts
the Prosecco wine industry structure. The production chain of this Italian
well-known sparkling wine is deciphered in terms of integration, or not, of
the winemaking process. Consistency with demand, production flexibility
and cost efficiency are found as related to outsourcing orientation of the most
important companies of the Prosecco industry. However, further investiga-
tion is needed in order to assess the effect of outsourcing on profitability.
The last case studied by A. Coelho and E. Montaigne gives insights from
the vertical integration backward in the international wine industry. The
authors pinpoint the influence of land availability, including land regulation,
on large wine companies’ growth pathways. According to land availability or
scarcity, worldwide companies select different ways of growth. International
wine brands need to ensure a stable quality of wines and volume to supply.
Sourcing of wine and grape becomes a major stake into a market led by overall
scarcity. Consequently, the companies act in order to secure wine or grape
procurement chain. When land availability for vineyard is good, say in Chile
or Australia, the growth of wine companies is based on greenfield investments
(vineyard planting). However, given the scarcity of vineyards available for
purchase in other places, such as Europe or the USA, making the procure-
ment chain secure is achieved via brownfield investments which include
mergers and acquisitions of already existing wine companies.
Finally, the common trait of these four case studies is land. Land for vine-
yard is available, or not, at worldwide level. Land is managed individually or
collectively through cooperatives for viticulture and/or winemaking. Land is
acting as terroir for quality-based segmentation of wines and consequently
designs the wine industry organization at each level: worldwide, country or
village.
References
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French wine industry performance? European Review of Agricultural Economics 38
(2): 237–258.
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Introduction: Outsourcing Versus Integration, a Key Trade-Off… 387
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35–41.
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of wine business in France. In AAWE 7th Annual Conference, Stellenbosch, June.
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tion in the wine market. AAWE Working paper, 227, March, 46 p.
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German viticulture. Journal of Wine Research 20 (3): 199–208.
Fares, M. 2009. Brokers as experts in the French wine industry. Journal of Wine
Economics 4 (2): 152–165.
Fill, C., and E. Visser. 2000. The outsourcing dilemma: A composite approach to the
make or buy decision. Management Decision 38 (1): 43–50.
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Kremic, T., O.I. Tukel, and W.O. Rom. 2006. Outsourcing decision support: A sur-
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mmorag@uchile.cl
20
To Make or to Buy? A Managerial Trade-
Off of Winemaking Process
in the Burgundy Vineyards
Georges Giraud and Abdoul Diallo
20.1 Introduction
Located between the cities of Paris and Lyon, in the northeast quarter of
France, the Burgundy wine-grape growing area occupies 31,470 hectares (ha)
and includes 3430 wine estates employing 11,300 farmers and other workers.
It produces 1.5 million hectoliters (hl) of wine, selling for €1.2 billion in 17
million cases, of which 48% are exported. Burgundy is a small wine-producing
region in terms of geographic area but produces great wines, highly priced.
From 2000 to 2010, the share of the total harvest sold as fresh grapes, grape
must or juice increased from 10% to 16% (Bruley 2011). This new trend
toward outsourcing pertains to the core stage of business for wineries, since
winemaking outsourcing can lead to a loss of control for the wine-grape grow-
ers. Questions arise as to how wine-grape growers are coping with this new
business model and conversely how winemakers can keep the quality of their
raw materials under control when buying freshly harvested grapes or must on
the open market.
The present study explores the strategies of wine estates with respect to
outsourcing versus integration of the winemaking process through an analysis
G. Giraud (*)
AgroSup, Graduate School of Agronomy and Food Science,
University Bourgogne Franche-Comté, Dijon, France
e-mail: georges.giraud@agrosupdijon.fr
A. Diallo
AgroSup, Dijon, France

https://doi.org/10.1007/978-3-319-98633-3_20
mmorag@uchile.cl
390 G. Giraud and A. Diallo
of original and recent data from the Burgundy wine industry. The data analy-
sis seeks to establish well-identified clusters among wine estates with respect
to their choice of outsourcing versus integration.
Our research questions are: (i) does the choice of business model, between
staying a viticulturist and also becoming a winemaker, matter with respect to
profitability? (ii) Does terroir act on firms’ strategies? Such hypothesis suggests
that wine estates’ strategies will be different from one vineyard to another and
not only among estates of different sizes. We will investigate these questions
within the mosaic of the vineyards in Burgundy.
20.2 Dataset and Analysis

The dataset used covers all 3430 estates producing grapes or wine in Burgundy
in 2011 (Table 20.1). Variables are based on data gathered by the Burgundy
Wines Board from each company via their cellar registers, including white,
red or sparkling wine; regional appellation, village appellation, premier cru or
grand cru; and selling bottled wine, in bulk or freshly harvested grapes or must
(Appendix 1).
A hierarchical ascendant classification (HAC) was applied to winegrowers’
data for the identification of clusters, using the Ward algorithm for maximiza-
tion of intercluster variance (Gordon 1999). A principal components analysis
(PCA) was then applied to the clusters so identified in order to extract the
most important variables and to analyze the structure of the observations with
respect to these (Abdi and Williams 2010). Finally, the ratios of efficiency and
profitability were compared according to the size and status (viticulturists vs.
winemaker) of the wine estates.
The overall turnover of Burgundy wines is estimated at €1.2 billion per
year, of which 48% is exported. Within the domestic market, 23% is sold in
mass-distribution outlets (supermarkets), 14% by direct sales, 12% via bars or
restaurants and 3% in specialist urban wine shops (Brivet 2013). With respect
Table 20.1 Number of wine estates according to the wine-grape-growing area,

Burgundy 2011
Côte & Hautes Côtes de Beaune 1137
Mâconnais 633
Côte & Hautes Côtes de Nuits 627
Chablis 413
Côte Chalonnaise 361
Grand Auxerrois 259
Source: Bruley (2011)
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To Make or to Buy? A Managerial Trade-Off of Winemaking Process… 391
to the winemaking process, 55% of grape production is harvested, trans-

formed into wine and bottled on the same holding; the remainder is harvested
and sold as fresh grapes, grape must or juice to the cooperative wineries or
traders. The 1600 year-old tradition of winemaking in Côte d’Or1 is still
vivid: 72% of the grapes harvested in this area is made into wine by the wine-
grape growers themselves; only 21% is collected by means of mechanical har-
vesting. In the newer vineyards in Burgundy, where winemaking traditions
are a mere century old, 47% of the harvest is used as grapes or must by the
cooperative wineries, and 71% is collected by mechanical means.
The Burgundy region accounts for 0.4% of worldwide wine production
and represented 2.8% of global wine sales in 2010 (Cadilhon et al. 2011). The
share of Burgundy wines’ export value is thus seven times higher than their
share of volume or growing area. Burgundy produces 1.5 million hl of wine,
of which 60.5% is white wine, 31.5% is red and 8% is sparkling. At 54 hl per
ha, average yields are among the lowest in France; average production per
estate is 395 hl, the smallest scale of production after Champagne and Alsace.
Within its 31,470 ha (amounting to 3.6% of the total area planted to vines in
France), Burgundy holds 84 appellations d’origine (23.5% of the total number
of French wine appellations). A grand cru appellation is held by 1.5% of the
wine produced in Burgundy, while 47.5% bears a premier cru or village appel-
lation. The remaining 51% of wine bears the regional appellation. The 200
million bottles produced yearly in Burgundy account for 3.2% of overall
French wine output in volume and 18.5% in value, indicating an average
price six times higher than the French average.
Notwithstanding this high price average, the range of prices for Burgundian
wines is broad. In 2010, in mass-distribution channels in France, 15% of
wines were sold for less than €3.50 per bottle (excluding value-added tax
[VAT]), and 41% were priced between €3.50 and €6, while 33% were priced
from €6 to €12 and 11% were sold for more than €12 per bottle. The lower
the price, the higher the frequency of the regional appellation within the seg-
ment; the reverse is true for premier cru and grand cru appellations. Still, in
urban wine shops in 2010 prices ranged from €7 for a white (chardonnay)
regional appellation to €665 for a red (pinot noir) Gevrey-Chambertin Village
appellation. Pricing policies in export countries are obviously dependent on
importers’ practices according to local price levels and thus do not allow for
meaningful comparisons.
The oldest wine-grape-growing area within the region of Burgundy.

1
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This high pricing situation applies for prestigious, elegant and top-ranked
wines such as Chablis, Meursault or Pommard. Some of these wines come
from small- or medium-sized wineries, and others are issued by traders who
are in some cases less inclined to brand their wines under the appellation
d’origine labeling policy, preferring instead to promote their own brands.
Benefiting from deep-rooted traditions based on more than a millennium
of know-how in the pristine mosaic of Climats de Bourgogne, the top-ranked
wines bearing premier cru or grand cru appellation are both exported and sold
on the highly demanding domestic market. These wines are made according
to a long process in which quality control and the specifications attached to
the appellation are extremely strict. This means that winemakers must tightly
control every stage of the process via integration. At the other end of the mar-
ket range, wines from the regional appellation face strong competition on
both the export and domestic markets and have to contend with price pres-
sure on large volumes. Consequently, keeping costs under control is more
important for those winegrowers who are more oriented toward large-scale
production. Efficient processing and modern management approaches,
including outsourcing, are used in order to maintain profitability.
20.3 Main Results and Discussion

The HAC analysis carried out found that the strategies of Burgundian wine
estates with respect to selling bottled wine versus harvested grapes/must or
wine in bulk differ according to the color of the wine and the level of appella-
tion d’origine (Appendix 1). Results obtained with data from the vineyards of
Chablis, Côte de Nuits, Hautes Côtes de Nuits, Côte de Beaune and Hautes
Côtes de Beaune are shown in order to illustrate our findings.2 In Chablis,
98.5% of winegrowers produce white wine; in Côte & Hautes Côtes de Nuits,
82.6% of the estates produce red wine; and in Côte & Hautes Côtes de
Beaune, 52.2% produce red wine.
Four clusters within the 413 winegrowers in Chablis were clearly identified
by means of the HAC (Fig. 20.1). Not surprisingly, no difference based on
wine type (red or white) appears among these clusters, since in Chablis nearly
everybody produces white wine. The dominant business model consists of
selling the harvest in bulk as fresh grapes or must to local cooperative winer-
ies, merchants or traders.
The results from the other wine-grape-growing areas (Mâconnais, Côte Chalonnaise and Grand
2
Auxerrois) are rather similar.
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Fig. 20.1 HAC dendrogram of wine business models in Chablis. (Source: Authors)
The business of cluster 1—the largest cluster, including 54% of Chablis

winegrowers—is relatively specialized, with 87% of wines bearing the village
appellation (Appendix 1). Fully 92% of the wine produced by cluster 1 is sold
as fresh grapes or must, primarily to cooperative wineries. The winegrowers of
cluster 2 are 100% white winemakers and sell 68% of their wine in bulk to
traders. The winegrowers of cluster 3 are the most diversified: although 64%
of the wine they produce bears the village appellation, a sizeable 22% of this
cluster’s production is sold as premier cru, while a smaller portion (12%) is
sold under the regional appellation. Cluster 3 is the only one with estates sell-
ing 78% of their production in bottles. The winegrowers of cluster 4 are also
100% white winemakers but are more strongly oriented toward the premium
Chablis segment, with 63% of wine sold under the premier cru appellation
and 13% as grand cru. Though working with these very stringent levels of
appellation d’origine, 93% of the harvest from cluster 4 is sold as fresh grapes
or must. Cluster 4 is also the smallest cluster, with winegrowers working with
specialized small traders rather than with large cooperative wineries or larger
traders.
It is worth considering whether the choice of wine business model operates
under specific conditions in Chablis. The land there is principally devoted to
cereal cropping and cow breeding. Even when they own some blocks of vine,
the farmers in the Chablis area are most often breeders and mixed farming
oriented. Vine growing is not their primary activity. As farmers, they are able
to pay attention to wine-grape growing, but they are inclined to delegate
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winemaking to other actors. This dominant scheme does not cover the whole
spectrum of wine production in Chablis. Some farmers have wine as their
main business. This is at least the case of the 16% of the winegrowers from
Chablis belonging to cluster 3.
Within the five clusters identified as significant by HAC among the 627
winegrowers from Côte & Hautes Côtes de Nuits, cluster 1 includes 50% of
the observed estates (Fig. 20.2). The main business model of clusters 1 and 5
is based on bottling wine on the estate (Appendix 1). However, a notable
share of wine produced in this area is sold as fresh grapes or must (clusters 2
and 3), and cluster 4 is differentiated by selling wine in bulk.
Although producing red wine is their dominant feature, the winegrowers of
cluster 2 are the most diversified, with 44% of their production in white wine
and 18% in sparkling wine. Cluster 2 provides wine for the regional appella-
tion with 78% of its production. The winegrowers of other clusters are also
diversified with respect to the level of appellation d’origine they use. Those of
cluster 3 sell 94% of their production as fresh grapes or must. Two-thirds of
their production is for the village appellation and 26% for the regional one.
The winegrowers of cluster 4 sell wine in bulk and provide 30% of their pro-
duction to premiers crus and grands crus. Cluster 5, the smallest one, bottles
67% of its production and produces mostly (81%) grands crus.
Almost two-thirds of the winegrowers from Côte & Hautes Côtes de Nuits
are also crop farmers. This may explain why the dominant business model is
to sell freshly harvested grapes and must or wine in bulk for three of the five
clusters.
Fig. 20.2 HAC dendrogram of wine business models in Côte & Hautes Côtes de Nuits.
(Source: Authors)
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Among the 1137 wine estates established in Côte & Hautes Côtes de
Beaune, HAC analysis allows us to distinguish five meaningful clusters
(Fig. 20.3). The winegrowers of clusters 1 and 5, accounting for 45% of the
estates, bottle their own wine, mostly red, and notably for premiers crus
(Appendix 1). Those of cluster 3 (16% of the estates) also make primarily red
wine, selling it in bulk for any level of appellation d’origine. The estates of
clusters 2 and 4 sell, respectively, 90% and 87% of their production as freshly
harvested grapes or must and make white wine for 55% of their output. The
winegrowers of cluster 2 (25% of the estates) supply the regional appellation
with 55% of their production, whereas those of cluster 4 (14% of the estates)
are oriented toward premiers crus for 57% of their output.
The estates in Côte & Hautes Côtes de Beaune are the most focused on
wine-grape growing among the farmers belonging to the Burgundian wine
sector. They are also the least specialized in terms of the type of wine they
produce, making both red and white wines (Appendix 1).
In each of the three wine-grape-growing areas described above, no signifi-
cant correlation exists between the business model with respect to outsourcing
versus integration of the winemaking process and the appellation profile of
the clusters. The propensity to bottle one’s own wine on the estate seems to be
higher for the premiers crus and grands crus. However, some clusters working
with regional or village appellations also bottle their own wine.
The choice of business model does seem to be related to the color of wine
produced. Among the winegrowers making red wine from 60% to 99% of
Fig. 20.3 HAC dendrogram of wine business models in Côte & Hautes Côtes de
Beaune. (Source: Authors)
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their production, 56% bottle their own wine. For the winegrowers making
white wine from 66% to 100% of their production, 50% sell their harvest as
fresh grapes or must. This is surprising with respect to certain financial impli-
cations. While white wine is usually sold within two years after harvest, red
wine can be kept for longer and can benefit from cellaring. One consequence
of this is that producing white wine may be considered as more favorable in
terms of cash flow. There is thus a kind of paradox in red wine-grape growers
bottling their own wine: by doing so, they tie up capital and create a cash-flow
requirement for their estates. White wine-grape growers, on the other hand,
can be seen as facilitating the raising of easy cash for the traders and the coop-
erative wineries by selling their production prior to the winemaking stage.
Another salient relationship found was between the bottling process and the
rate of direct export. Of the winemakers bottling their own wine, from 69%
to 93% had a rate of direct export ranging from 6% to 62%. This does not
mean that the other winegrowers were unable to export. By outsourcing the
bottling stage, however, these wine-grape farmers have to export indirectly by
means of agents, most often the traders who buy their harvest or wine in bulk.
Within each Burgundian wine-producing area, winegrowers who bottle
their own wine achieve noticeable rates of exportation. This means that bot-
tled wine has been the standard for foreign shipping, in accordance with
traceability requirements from distant markets. This situation may change in
the near future given the cost of shipping glass with weight and no value,
compared to shipping wine in bulk. The decision to ship bottled wine is easy
to understand for top-ranked wines with premium prices such as premiers crus
or grands crus. At high price points, the weight sensitivity of shipping is low.
The trade-off between bottles and bulk for foreign shipping may be less clear
for medium-range wines, which make up the majority of business today, espe-
cially for distant markets such as Asia.
Overall, the HAC employed identifies the differences among clusters
within each wine-producing area. A more complete perspective is needed for
deeper analysis.
Carried out with data from the previously identified clusters across all of
Burgundy, a PCA yields interesting results (Fig. 20.4). The three most impor-
tant factors extracted, with Eigen value > 1.5, explain 67.6% of the overall
variance, which is strongly significant (Appendix 2).
The first acting factor, explaining 28.1% of the overall variance, is com-
posed of winegrowers making red wine versus white wine. Red wine is gener-
ally bottled on-estate, whereas white wine is more often sold as fresh grapes or
must. The second factor differentiating winegrowers explains 22.7% of the
variance and is made up of winegrowers making sparkling wine bearing the
regional appellation (such as Crémant de Bourgogne) versus those producing
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Fig. 20.4 Principal Component Analysis of winegrowers’ business models, Burgundy

2011. (Source: Authors)
grands crus or premiers crus. The third factor differentiating winegrowers

explains 16.9% of the overall variance. It opposes those winegrowers selling
their harvest as fresh grapes or must versus those selling wine in bulk under
the village appellation.
These results are congruent with the previous findings indicating that a
variety of business models are found within the Burgundian wine sector. Not
strictly linked to a specific level of appellation d’origine, the choice between
outsourcing and integration of winemaking seems more closely tied to red
versus white winemaking. Our next question is: does it interfere with estates’
efficiency and profitability?
The results obtained through data analysis indicate that important differ-
ences exist among the estates (Table 20.2). Size of operation has an impact on
efficiency and profitability, but it is not the only factor: winemakers and viti-
culturists do not have the same efficiency or profitability, whatever their size.
Those who integrate winemaking are more profitable than those who focus
only on viticulture.
On average, annual income is 10% below expenses for the 25% smallest
viticulturists (first quartile) and exceeds expenses by 15% for the 25% biggest
ones (last quartile) (Brivet 2013). For winegrowers making wine, annual
income is 6% below expenses for the smallest quartile and 22% above expenses
for the largest quartile. For the viticulturists, the rate of return is −3% for the
smallest quartile and +6.5% for the largest. This translates into a ratio of
+3.5% for the smallest quartile of winemakers and +14% for the largest quar-
tile. In terms of both efficiency and profitability, in other words, the magni-
tude of ratios increases with size of operation, although the difference between
viticulturists and winemakers is also noticeable.
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Table 20.2 Efficiency and profitability of wine estates according to size and business
model
Burgundy 2011 Turnover/expenses Rate of return of assets
Viticulturists Winemakers Δ Viticulturists Winemakers Δ
1st quartile −10% −6% 4 −3% +3.5% 6.5
Last quartile +15% +22% 7 +6.5% +14% 7.5
Δ 25 28 9.5 10.5
Wine estates μ size μ yield μ sales Income/
working unit
1st quartile 8 ha 47 hl/ha 5700 cases €57,000
Last quartile 34 ha 62 hl/ha 14,100 cases €47,000
Source: Author’s elaboration from Brivet data (2013)
Δ = |x−y| is the difference of value between the categories or the quartiles, that is, 4
= |−10% − (−6%)| and 25 = |−10% − 15%|
The estates belonging to the last quartile have an average size of 34 ha, pro-
duce 62 hl/ha and sell 14,100 cases of 12 bottles each. The average size of
estates from the first quartile is 8 ha; they produce 47 hl/ha and sell 5700
cases. Surprisingly, estates in the first quartile earn €57,000 per working unit,
whereas large estates earn €47,000. The ability to address niche markets and
to export directly may be determining factors with respect to profitability
among Burgundian wine producers.
The range of efficiency and profitability is sensitive to the size of the estates,
but it also depends on the business model. The difference (Δ) is larger accord-
ing to size within the same business model than it is between business models
within the same size category.
20.4 Limitation
The first limitation of such results is based on the way data are defined.
Extracted from wine cellar registers, the data employed here do not include
the final destination of the merchandise. Fortunately the location of the
company is given, allowing an analysis of the effect of appellation on business
strategy in the wine industry in Burgundy.
Another limitation is the absence of records indicating the financial links
between wine companies. As a result of local land pressures, expected incomes
from wine in Burgundy and the funds needed to run a wine business with
important stocks of (usually red) wine for long-term cellaring, it is prudent
for winegrowers to clearly separate their different ownerships. It is now com-
mon to have two or three different companies operating within the same
estate: one owns and manages the vineyard, a second oversees winemaking in
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a dedicated building, separate from the owners’ home, and a third one man-
ages the wine cellar and handles the marketing and selling of the wine. Some
of the exchanges recorded in the dataset thus represent contracts between dif-
ferent companies within the same holding rather than genuine outsourcing.
A similar limitation relates to the close relationships between some traders
and estates. Formerly distinct, these businesses are nowadays more strongly
interrelated. In order to secure high quality and minimum quantities of grapes
at harvest, it is now common to find traders who own parcels of vines in part
or in full. In this case, the sales of fresh grapes or must and the shipping of
wine in bulk to the trader cannot be seen as pure outsourcing practices. They
are internal sales within different titular ownerships of the same wine com-
pany. The reverse situation occurs as well. Some winemakers, in addition to
bottling their own wine, also buy fresh grapes or must from other viticultur-
ists in order to produce a broader portfolio of different wines. In doing so,
they become traders in their own right.
20.5 Conclusion
Instead of identifying the best way to manage a profitable business in the
Burgundy wine industry, our study highlights the diverse possible ways of
doing so. Our results indicate that the diversity of wines and the mosaic of
small and large estates are not limiting factors for making excellent wines and
running a viable business simultaneously. Within this diversity, the terroir of
origin is a key factor in the choice of business models according to the long
experience of the winegrowers.
The more prestigious the wine is and the higher its price, the better inte-
grated the winemaking process is likely to be. This correlation is stronger for
the red wine sector than it is for the white wine sector, where the relationships
are a bit more complex. In any case, this indicates that outsourcing, although
used occasionally, is not the dominant path to business profitability within
the French wine industry, at least for top-quality wines such as the grands crus
and premiers crus of Burgundy.
Although congruent with previous studies and a good depiction of the
mosaic of wine businesses in Burgundy, the results found here suggest the
need for further investigation and additional data in order to arrive at a better
understanding of wine-grape growers’ business model decisions. A more com-
plete dataset based not only on cellar registers but supplemented by a specific
survey would be useful in order to confirm or refute the present findings. It
would also be interesting to carry out similar surveys in wine-producing areas
other than Burgundy.
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ppendix 1: Sales’ Breakdown of 3430 Wine Estates According to Clusters and
A
Wine-Grape-Growing Areas
400
Burgundy, 2011 Packaging Color of wine Appellation level

Bottled Grape In bulk Red White Sparkling Regional Village Premier Grand Direct Estates
Cluster (%) (%) (%) (%) (%) (%) (%) (%) cru (%) cru (%) export (%) number
Auxerre 1 87 4 9 60 33 7 73 27 0 0 6 96
Auxerre 2 5 84 11 10 90 0 38 53 9 0 1 67
Auxerre 3 31 22 47 30 66 4 82 16 2 0 5 52
Auxerre 4 7 93 0 2 4 94 99 1 0 0 0 44
Beaune 1 80 15 5 64 34 2 30 42 27 1 11 398
Beaune 2 6 90 4 27 55 18 55 42 3 0 0 284
G. Giraud and A. Diallo
Beaune 3 26 13 61 73 26 1 45 37 17 1 3 182
Beaune 4 9 87 4 45 55 0 6 19 57 18 3 159
Beaune 5 93 5 2 52 47 1 20 41 37 2 62 114
Chablis 1 2 92 6 0 99 1 2 86 11 1 0 223
Chablis 2 19 13 68 0 100 0 2 85 11 2 4 91
Chablis 3 78 9 13 2 97 1 12 64 22 2 34 66
Chablis 4 1 93 6 0 100 0 21 3 63 13 0 33
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Chalon 1 79 10 11 63 32 5 35 44 21 0 9 152
Chalon 2 19 28 53 70 20 10 85 11 4 0 1 112
Chalon 3 4 91 5 5 6 89 98 1 1 0 0 54
Chalon 4 6 77 17 24 75 1 34 28 38 0 0 43
Macon 1 20 43 37 12 77 11 82 18 0 0 3 247
Macon 2 5 70 25 0 100 0 8 91 1 0 1 196
Macon 3 89 5 6 13 85 2 48 52 0 0 20 190
Nuits 1 79 9 12 91 8 1 28 46 21 5 27 315
Nuits 2 27 64 9 38 44 18 74 16 8 2 5 120
Nuits 3 3 95 2 96 4 0 26 65 7 2 0 108
Nuits 4 8 1 91 97 3 0 18 52 23 7 1 52
Nuits 5 69 27 4 99 1 0 2 12 5 81 42 32
Note: breakdown of wine sold (%) as bottled/fresh grape/wine in bulk; red/white/sparkling; regional/village/premier cru/grand cru
appellation; number of estates in the cluster
ppendix 2: Results of PCA, 3430 Wine Estates,

A
Burgundy 2011
Component Eigen value Percentage of variance Cumulative % of variance
Comp 1 2.808 28.084 28.084
Comp 2 2.268 22.681 50.765
Comp 3 1.687 16.874 67.639
Comp 4 1.296 12.958 80.597
Comp 5 0.967 9.673 90.270
Comp 6 0.696 6.963 97.233
Comp 7 0.275 2.749 99.982
Comp 8 0.001 0.009 99.991
Comp 9 0.001 0.007 99.998
Comp 10 0 0.001 99.999
Coordinates and
correlation Cos2 Contribution
Dim 1 Dim 2 Dim 3 Dim 1 Dim 2 Dim 3 Dim 1 Dim 2 Dim 3
Red 0.8357 −0.3034 0.0949 0.70 0.09 0.01 24.87 4.06 0.53
Sparkling 0.2246 0.8325 0.2396 0.05 0.69 0.06 1.80 30.55 3.40
White −0.8807 0.1576 −0.1203 0.78 0.02 0.01 27.62 1.10 0.86
Regional 0.3903 0.8752 0.0701 0.15 0.77 0.00 5.42 33.77 0.29
Village −0.4977 −0.2392 −0.6721 0.25 0.06 0.45 8.82 2.52 26.77
Premier cru −0.2224 −0.5092 0.4481 0.05 0.26 0.20 1.76 11.43 11.90
Grand cru 0.3335 −0.5313 0.4108 0.11 0.28 0.17 3.96 12.45 10.00
Bottled wine 0.5532 −0.239 −0.2884 0.31 0.06 0.08 10.9 2.52 4.93
Grape/must −0.6318 0.1243 0.6449 0.40 0.02 0.42 14.22 0.68 24.65
Wine in bulk 0.1343 0.1443 −0.5303 0.02 0.02 0.28 0.64 0.92 16.67
References
Abdi, H., and L.J. Williams. 2010. Principal component analysis. Computational
Statistics 2 (4): 433–459.
Brivet, H. 2013. Résultats économiques 2011 des vignerons bourguignons. CER 71,
Vinomarket, BIVB 28 janvier, 19 p.
Bruley, S. 2011. La viticulture en Bourgogne, RGA 2010. Agreste Bourgogne 125, 6 p.
Cadilhon, J., O. Catrou, and A. Renaud. 2011. Strong geographical identities,
Census agriculture 2010, Wine industry. Agreste Primeur 271, 4 p.
Gordon, A.D. 1999. Classification, monographs on statistics & applied probability. 2nd
ed. London: Chapman & Hall/CRC.
mmorag@uchile.cl
21
Vertical Integration and Financial
Performance of French Wine Farms
and Co-operatives
Adeline Alonso Ugaglia and Julien Cadot
21.1 Introduction: Benefits and Costs of Vertical

Integration
Most studies and policymakers state that vertical integration is required to
create value, such as Bijmanet al. (2012) who observe that, on the European
scale, the most sustainable wine co-operatives are those which have imple-
mented vertical integration or Couderc et al. (2010) who consider that the
Languedoc-Roussillon wine firms should maintain control of their bottling
and branding activities to capture more value on the regional scale. Moreover,
Cadot (2015) observed that vertical integration significantly increases the
margin of all wine firms but that it depends on the ownership structure of the
firm. This reveals that vertical integration implies internal costs related to the
relationship between the ownership and the management of the firm.
Therefore, the choice of vertical integration can be seen as a trade-off
between a decrease in transaction costs and an increase in internal costs.
Vertical integration requires an upper-skilled management which should
J. Cadot
Institut Supérieur de Gestion (ISG), Paris, France and Department of Agricultural
and Applied Economics at Virginia Tech, Blacksburg, USA
e-mail: juliencadot@vt.edu

https://doi.org/10.1007/978-3-319-98633-3_21
mmorag@uchile.cl
404 A. Alonso Ugaglia and J. Cadot
develop a specific human capital through learning by doing (Couderc et al.

2010). This changes the relationship between the owners of the firm and the
managers (Cadot 2015). The management benefits from an informational
advantage which could lead to agency costs.1 In other words, because of
their dominant position, the managers could adopt a behavior and an
investment policy which do not strictly optimize value for the firm’s owners.
This mechanism should be different according to the ownership structure of
the firm. Indeed, there should be no agency costs when the manager is also
the owner of the firm. And, following the Jensen and Meckling (1976)
approach, the level of these costs should be inversely related to the propor-
tion of ownership held by the manager. The agency costs of certical integra-
tion should not affect farmers, but the issue can be critical for co-operatives,
because of their “vaguely” defined ownership structure (Cook 1995) due to
the double quality of the members, who are user-owners, and other princi-
ples of the co-operative structures such as the “one member one vote”.
Cadot (2015) shows that vertical integration implies agency costs2 for out-
sider-managed firms but the overall impact of vertical integration remains
positive. Unexpectedly, the agency costs associated with vertical integration
do not increase in the case of co-operatives. However, co-operatives show
the lowest overall impact of vertical integration on performance. Cadot and
Viviani (2013) observe that the downstream structures related to Languedoc-
Roussillon wine co-operatives, either a union of co-operatives or a subsid-
iary, stated that they are financially constrained, while the first-tier
co-operatives are not. This could reveal that the co-operatives are reluctant
to allocate sufficient resources to support their strategies of vertical
integration.
In this chapter, we gather results about vertical-integration strategies of
wine farms (and especially co-operative members compared to the others)
and wine co-operatives in France to explore wine farms’ performance in
relation to their vertical-integration level. In the following section, we pres-
ent the samples used for two studies, one focusing on vertical integration by
wine firms, and the other by wine co-operatives. Then, we present the
results.
This is the concept of “entrenchment” of managers, formalized by Shleifer and Vishny (1989).
1
This result is in line with D’aveni and Ravenscraft (1994).

2
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Vertical Integration and Financial Performance of French Wine… 405
21.2 D
escription of the Samples: French Wine
Farms and Bordeaux Wine Co-operatives
21.2.1 French Wine Farms
The Farm Accountancy Data Network (FADN) in Europe provides represen-

tative data on farms according to three criteria: region, economic size and type
of farm (ETO3). Here we used the data of the ETO viticulture for France over
three years (2010, 2011 and 2012) on a constant sample. Insofar as this data-
base does not differentiate between co-operative members and wine farms
selling bulk wine (not registered in the database that refers only to the product
sold) (Delord 2011), we coupled this data with the CVI.4 We use the informa-
tion on the destination of sales of wine farms to differentiate (Cadot et al.
2017):
–– The co-operative members who deliver their grapes to a co-operative (over

75% of volumes). Then the co-operative processes and sells the wine on
behalf of its members.
–– The wine farms called “bulk” that produce wine from their grapes and sell
more than 75% of their volume in bulk.
–– The wine farms called “mixed”, producing and selling wine in bulk and in
bottles, each representing 25–75% of the volumes.
–– The wine farms called “bottle”, producing and selling wine in bottles for
more than 75% of the volumes.
–– The others, using several of these distribution channels and possibly selling
fresh grapes and which do not fit in any of the categories proposed above.
The pairing of the FADN and the CVI allows us to create a file with 801
winegrowers. We exclude the farms with less than three registered years and
the wine farms from the Champagne and Poitou-Charentes5 (mainly Cognac)
regions, to set a sample of 684 wine farms, including 258 wine co-operative
members, 108 wine farms selling mainly bottled wine (“bottle”), 137 wine
farms selling bulk wine (“bulk”) and 111 “mixed” wine farms (Table 21.1).
Thirty-eight percent of the wine farms deliver most of their grapes to a wine
3
ETO: economic and technical orientation.
4
CVI: computerized vineyard register in France.
5
The financial characteristics of Champagne and Cognac farms are fundamentally different from the
average French wine farms in terms of strategy.
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Table 21.1 Number and wine farms’ allocation

Number of farms Distribution (%)
Co-operative members 258 38
Bulk 137 20
Mixed 111 16
Bottle 108 16
Others 70 10
Total 684 100
co-operative. Fifty-two percent process wine and sell the wine in bulk or in
bottles, by themselves or through intermediaries (negociants or wholesalers).
The remaining 10% are composed of a variety of models and it is difficult to
classify them (fresh harvest as the main activity or as an addition to wine sell-
ing). We do not present the results for this latest category which is very
heterogeneous.
Appendix shows the distribution of these wine farms by wine region.
21.2.2 Bordeaux Wine Co-operatives
In 2010, the Bordeaux wine region encompasses 7400 farms cultivating vine-
yards, with 5700 farms specialized in wine growing. The vineyard covers
124,000 ha (about 50% of the agricultural area of the Gironde department)
and generates 90% of this area’s agricultural value. Two thousand four hun-
dred and sixty winegrowers are co-operative members. They operate 24,279 ha,
that is, 20% of the wine area in this department. The 39 Bordeaux co-
operatives process about 36% of the 5.8 million hectoliters (hl) of the wine
produced. The average size of farms exclusively making wine through the co-
operatives is about 10 ha (DRAAF 2011).
There is no official database about co-operatives in France, so we used a
survey to extract economic and financial information on all the Bordeaux
wine co-operatives. This original database includes accounting data and infor-
mation on the distribution channels and the volumes (both from the déclara-
tion de récolte), the number of co-operative members and the area they operate
in. Some questions (such as investment or winemaking costs per hl) are
directly answered by the co-operative accountants. As a result, we are able to
compute the sales per hl as well as the price paid to producers per hl and to
make the link with the distribution channel, general co-operative features and
financial ratios for the 2005–2010 period.
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Our approach relies on the distinction of co-operatives according to their

downstream strategy: “traditional”, “union” or “vertical integration” following
and adapting Cook (1995). We consider that the downstream strategy is:
–– “Traditional”, when co-operatives have implemented neither a union nor a

vertical-integration strategy (12 co-operatives in 2010).
–– “Union”, when more than 30% of turnover is made up of sales thanks to a
union of co-operatives for the commercial part (10 co-operatives in 2010).
–– “Vertical integration”, when bottled wine represents more than 30% of the
turnover (15 co-operatives in 2010).
The “traditional” and “union” co-operatives are comparable in size consid-

ering the number of producers (Table 21.2). However, the size of the produc-
ers’ farms is higher for producers who belong to a co-operative in “union”. We
observe that sales of co-operatives in “union” are also, on average, higher than
sales of “traditional” co-operatives. This may be a direct consequence of the
average size of producers’ farms. The vertically integrated co-operatives seem
to be more heterogeneous than the others in terms of size. Indeed, they
encompass both the co-operatives with the highest number of producers and
those with the lowest number. We make the same observation for the total
area operated by co-operative members. It seems that the vineyard of each
winegrower is smaller for these co-operatives than for co-operatives in “union”.
Table 21.2 Size, sales and distribution channel

Number of members Area (ha) Sales (€)
Traditional Obs 57 76 76
Mean 69 524 3,147,210
Min 30 125 416,569
Max 185 1935 14,600,000
Union Obs 29 35 35
Mean 77 785 4,351,052
Min 33 100 466,085
Max 208 2560 15,200,000
Vertical integration Obs 73 102 102
Mean 134 647 7,170,552
Min 12 30 462,991
Max 549 3671 25,400,000
Total Obs 159 213 213
Mean 100 626 5,271,695
Min 12 30 416,569
Max 549 3671 25,400,000
Note: Observations are co-operative-year, for example, 37 co-operatives over a
five-year period (2005–2010)
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Indeed, the average number of producers is higher for “vertically integrated”

co-operatives, but the average area operated by each co-operative is smaller.
The wine price (sales per hl) is closely comparable for “traditional” and “union”
co-operatives.
In France, some co-operatives are specialized in the first stage of process-
ing and sell the wine in bulk as a raw material to private companies (nego-
ciants) which will blend and market the product—the bottle of wine—to
retailers. Traditionally, the main activity of Bordeaux wine co-operatives is
to process the wine grapes produced by the co-operative members and to
sell bulk wine to negociants, who blend, bottle and market the wine to
retailers. This is what we consider as the “traditional” co-operatives. Others
have chosen to blend and market their own wines to retailers, the “vertically
integrated” co-operatives. They have successfully entered niche markets
through vertical integration, that is, bottling and branding their own wine,
such as the co-operatives of Saint-Émilion and Listrac in the Bordeaux wine
region. Some other co-operatives have chosen to constitute a co-operative
with other co-operatives, called a “union”, specialized in the blending and
marketing of wine. These co-operatives—the co-operative “unions”—have
chosen to federate into second-tier co-operatives which directly compete
with negociants.
The distinction between the first-tier co-operatives and the union of co-
operatives is made in only a few studies. Cadot et al. (2016) collected data for
the Bordeaux wine industry and show that 32% of Bordeaux wine co-
operatives sell more than 75% of their wine in bulk, 27% sell more than 75%
of their wine through a co-operative union and 40% sell more than 75% of
their wine in bottles.
21.3 W
ine Farms’ Performance and Vertical-
Integration Level
21.3.1 Ratios
Wine farms’ performance is analyzed considering economic indicators but

also financial performance ratios. The FADN provides the income generated
by farms, taking into account the specificities of the farm: rents and distinc-
tion between employment and family work. Here, we present the production
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of the year6 and, following Delord (2011), two specific balances in the finan-
cial analysis of farms, total income and family income for farms according to
their degree of vertical integration.7 The most relevant and operational mea-
sure of family income is the current income before tax (Chassard and Chevalier
2007; Delord 2011). The current income before tax, the sum of operating
income and the financial result of the firm, corresponds to the benefit that can
be assigned to the remuneration of the manager and self-employed caregivers
who work on the farm. It is useful to analyze the ability of farms to generate
income for all permanent workers, paid or unpaid, through the total income
registered with the FADN. It is the amount of family income (not employees)
and all expenses for employees, salaries and benefits, expressed per annual
work unit (Delord 2011). The annual work unit represents the number of
hours for a person employed full time for one year on a farm.
To explore the financial structure, we then propose an analysis of simplified
average operating balances by wine farm category. We present, on one hand,
the economic assets, defined by the consideration of two aggregates, fixed
assets and working capital requirements (WCR).8 Secondly, we present the
financial liability which includes equity and net debt.9 We propose to analyze
financial performance by type of operation from average financial characteris-
tics. To this end, we decompose the profitability of the activity depending on
the margin and capital turnover, following a fairly standard approach in finan-
cial analysis, which can be applied to the analysis of farms (Barry and Ellinger
2012). We present an analysis of WCR in days of turnover10 and debt ratios
by measuring the amount of debt to equity and the debt ratio on the result.
Finally, we look at two ratios that approximate the maturity of the debt to that
asset: the medium- and long-term debts on the amount of assets and short-
term debt on WCR.
6
The production of the year is the aggregation of production sold, inventory variations, capitalized pro-
duction, production and own consumption of various products from inseparable secondary activities, less
purchases of animals. Production for the year does not include subsidies.
7
We are interested in co-operative members as a reference, bulk, mixed and bottled private cellars.
“Other” farms represent a minority and are not considered in the analysis of the degree of vertical
integration.
8
The need for working capital is the sum of trade receivables and payables less stocks. This is the amount
necessary to fund the business operating cycle, that is to say, the gap between cash expenses incurred for
the production and receipts from sales of products.
9
Net debt is the sum of financial debt less cash operating assets (cash and securities). Debt allows us to
consider only the debts that cannot be repaid immediately by farms.
10
As seen above, the working capital is a highly dependent variable of the position of the companies in
their sectors. Considering vertical integration leads us to attend to this aggregate.
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21.3.2 Economic Performance
Table 21.3 shows the average data for four aggregates of the farm balance
sheet. Co-operative members correspond to grape farms that combine the
least assets (€250,000 against €440,000 for the entire sample). In particu-
lar, they have a much lower WCR compared to the amount of capital assets,
while WCR is roughly equivalent to the amount of capital assets for all
farms. The co-operatives are also the farms for which the net debt is the
lowest since it only represents 13% of the financial liability (Fig. 21.1). At
first reading, we see that the wine farms are well capitalized since the
amount of equity is higher than the average capital assets (balance sheet
analysis above), indicating that the working capital is necessarily positive.
The debt level is generally low; it is generally less than one third of the total
economic record.
The balance sheet of private cellars bottling their wine (“bottle”) is over
three times that of co-operative members (€870,000 against €250,000 on
average). WCR represents 52% of total assets and 320 days of sales, which
is higher than the average of the sample. Net debt represents 30% of the
balance sheet, which is higher than that observed for all other wine farms.
The balance sheet of wine farms processing and selling bulk wine (“bulk”)
is closer to the one of co-operative members. Fixed assets are higher
(€213,915 against €152,567) and WCR as well (€156,355 against €94,490).
The share of assets (58%) is also higher than the WCR in the economic
assets (42%). Net debt is also quite low: 16% of the financial liability.
“Mixed” wine firms have an amount of assets which is quite close to the one
of private cellars processing and selling bulk wine (“bulk”), but the WCR is
much higher. It represents 57% of the balance sheet and in days of turnover,
Table 21.3 Economic balance by level of vertical integration

Economic assets (€) Financial liability (€)
Co-operative members Fixed assets (€) 152,567 61% Equity (€) 215,890 87%
WCR (€) 96,490 39% Net debt (€) 33,594 13%
Bulk Fixed assets (€) 213,915 58% Equity (€) 312,590 84%
WCR (€) 156,355 42% Net debt (€) 59,530 16%
Mixed Fixed assets (€) 231,179 43% Equity (€) 405,854 76%
WCR (€) 302,238 57% Net debt (€) 129,867 24%
Bottle Fixed assets (€) 450,424 52% Equity (€) 613,966 70%
WCR (€) 420,964 48% Net debt (€) 260,014 30%
Total Fixed assets (€) 223,477 51% Equity (€) 327,869 78%
WCR (€) 196,614 49% Net debt (€) 93,684 22%
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1,000,000
900,000
800,000
700,000
600,000
Euros
500,000
400,000
300,000
200,000
100,000
0
Assets Libilities Assets Libilities Assets Libilities Assets Libilities
Co-operative Bulk Mixed Bottle
members
Fig. 21.1 Economic balance by level of vertical integration. (In dark gray, “high bal-
ance” on the asset and liabilities, respectively, corresponds to fixed assets and equity.
In light gray, the “low balance” to match assets and liabilities, respectively, in WCR and
net debt)
Table 21.4 Vertical integration and profitability ratios

Margin Capital Working capital Profitability
(%) turnover requirements (%)
Co-operative 25 0.48 290 11.82
members
Bulk 15 0.57 267 8.74
Mixed 17 0.66 309 11.96
Bottle 19 0.64 271 12.42
Total 20 0.60 282 11.41
and it is equivalent to the “bottle” wine farms’ (318 against 320 days). The
level of debt, 24% of the balance sheet, is as close to these same wine firms
bottling the wine.
21.3.3 Financial Performance
The analysis of the production, the results and the financial structure allows
us to calculate financial ratios. For the total sample, the average margin (fam-
ily income over production) is 20% (Table 21.4). The capital turnover ratio is
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0.60 (1 active euro is required to achieve production of €0.60), which posi-

tions the wine farms in the capital-intensive businesses (Vernimmen et al.
2015): this ratio of capital turnover is close to that of Eutelsat, whose business
model is based on the ownership of a fleet of satellites. The profitability of
operating assets is 11%. This result should be interpreted with caution.
However, this return does not take into account the income of the farmer.
Considering a minimum income of €20,000 per year, the economic profit-
ability drops to 7.20% which is rather low, given the risk of the activity. Under
these conditions, the return on average equity is 9.26%. Financial liabilities
represent 28.3% of equity and less than twice the result of the company
(financial debt/income = 1.95) (Table 21.5). Fixed assets are funded at 47%
by medium- and long-term debts (medium- and long-term debts/assets) and
short-term debt represents 11% of the WCR, which is rather low. The wine
farms are profitable and have a low debt level, whether in the long or the
medium term (see Tables 21.4 and 21.5).
21.3.3.1 C
o-operative Members: A Significant Working Capital
Requirement and Very Limited Bank Financing
The margin obtained by co-operative members is higher than the margin of

wine farms that have chosen to integrate downstream activities. This margin
indicates a capital-intensive behavior, with a turnover ratio of assets of 0.48,
much lower than the average farm (0.60). These characteristics are typical of
companies whose business is centered on production (grape production in
this case).
The WCR represents 290 days of sales, which is higher than the one of
private cellars bottling the wine (271 days) and private cellars processing and
selling bulk (267 days). This significant amount reflects the relationship
between the co-operative and the co-operative members. The producer brings
Table 21.5 Vertical integration and financial risk

Financial Financial Medium- and Short-term debt/
debt/equity debt/ long-term working capital
(%) income debts/assets (%) requirements (%)
Co-operative 15.56 3.56 28.18 5.81
members
Bulk 19.04 4.82 36.86 12.15
Mixed 32.00 2.96 56.51 14.18
Bottle 42.35 1.29 62.66 11.54
Total 28.57 3.35 47.46 11.24
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his production to the co-operative and his income is smoothed over the whole
year, usually with a delay of three months. Conversely, the farmer gets the
amount of production sold in the weeks following the transaction if the wine
sold by the co-operative is bulk wine. Ultimately, the efficiency obtained is
11.82%, which is greater than for the entire sample. This result, however, is
relative: if we take into account an income of €20,000 for the farmer, the
economic profitability drops to 4% and the return on equity would be only
4.82%, which seems very low to cover the risk associated with the activity.
The debt level is low, with net debt representing 15.56% of equity. It rep-
resents a little more than the result of a year. But if we take into account an
income of €20,000 for the farmer, it represents 3.56 times the result, which is
not negligible. Net assets are financed for less than a third of the debt in the
medium and long term, and short-term debt represents only 5.8% of the
WCR. These figures can be explained in two ways: a low level of investment,
which can be alarming for the future of the co-operative system whose base is
the competitiveness of co-operative producers, or a limited banking support.
Note that members do not present short-term financial risks. The analysis
shows that they have a short-term debt margin in the eventuality of tempo-
rary difficulties.
21.3.3.2 Th
e Wine Farms Selling Bulk: Low Profitability
and Low Debt
The margin obtained by “bulk” wine farms is lower on average than the one
obtained by the “bottle” wine farms, with a capital turnover that is not better.
Economic profitability falls to 8.74% but amounts to only 3.12% when con-
sidering an income of €20,000 for the farmer, which is not nearly enough to
offset the economic risk on the activity. Thirty-six percent of the capital is
financed by medium- and long-term debts which are slightly higher than the
amount observed for co-operative members but very far from wine farms bot-
tling the wine. However, the debt represents 1.82 times the family’s income
and 4.82 times the adjusted result, which is by far the highest ratio.
21.3.3.3 Th
e “Mixed” Wine Farms: An Interesting Profitability
but a Risk on WCR
The margin of “mixed” private cellars is between that of “bulk” private cellars
and “bottle” ones. However, the capital turnover ratio is higher than that of
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these two categories of wine farms, which is explained both by the value added
by the integration and the relatively small amount of assets (closer to
"bulk" wine farms than "bottle" ones). Therefore, the “mixed” private cellars
have an economic profitability of 11.96%, which is close to the profitability
achieved by the “bottle” wine farms. The total debt level is 32%, which is just
in between the “bulk” and the “bottle” wine farms. One point must be
noticed: these wine farms are those with the highest WCR, with 309 days of
production, and working capital financing rate of short-term debt is the high-
est (14.18%). Among the various types of wine farms observed in the sample,
“mixed” private cellars are those that are most at risk of short-term failure.
Note, however, that by correcting the result of a minimum income of €20,000
for the farmer, the result net debt ratio of these operations is better than the
ratio for “bulk private” cellars or co-operative grape growers.
21.3.3.4 Th
e Wine Farms Bottling and Selling the Wine:
An Interesting Profitability and a Reasonable Debt
The valuation induced by bottling production improves the capital turnover

ratio, but the cost of labor relative to the co-operative members reduces their
margin. The “bottle” wine firms have the highest economic return of 12.42%.
Net debt represents 42% of equity, against 28% for the entire sample. This
debt can result in more favorable investment dynamics for these operations:
the medium- and long-term debts account for almost two thirds of the assets.
Despite this, the average debt represents 1.18 times the result (and only 1.29
times when we take into account the minimum income for the farmer), which
is really reasonable. Similarly, the short-term risk is on average very limited
since the short-term debt financing represents less than 11.5% of WCR.
From the co-operative members to the wine farms that sell bottled wine on
the market, the producing firms have different degrees of vertical integration.
It should be noted that the intermediate degrees of vertical integration have
weaknesses, which are consistent with the bipolarization tendency of wine
farms toward specialization or total integration observed by Traversac et al.
(2007). According to our results, integrating the winemaking activity can lead
to an increase of production, in value, by wine farm and by unit of work or
area, but the expenses associated with the integration result in a lower income
per unit of work and per area than the one obtained by co-operative members.
The profitability of the capital employed on these farms is low and insignifi-
cant when we take into account the need for a minimum income for the
farmer. The situation of “mixed” private cellars is different: the integration of
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the bottling activity improves the income of the wine farms and the profit-
ability of the farm. But they face difficulties to manage their WCR. As a result,
these farms are the ones facing the highest risk of bankruptcy. In this context,
supply is an important issue for wine co-operatives and trading companies
(negociants), not only in a long-term development perspective but also to
avoid facing production overcapacity. Our analysis shows that co-operative
members have a large debt capacity, probably due to lack of investment
dynamics. The positive point is that this debt capacity makes it possible to
finance their development if co-operatives are able to provide attractive growth
prospects. Co-operatives can adopt strategies involving a partnership with
trading companies, where one of the sources of supply, the “bulk” private cel-
lars, is drying up.
21.4 V
ertical Integration by the Wine-Processing
Firms: Economic and Financial Performance
in Bordeaux Wine Co-operatives
21.4.1 Descriptive Statistics
To go further with the vertical-integration process, we focus on the rela-

tionship between the price paid to co-operative members and the down-
stream strategies of co-operatives (Cadot et al. 2016). We analyze the
trade-off between co-operatives’ current payments to members relative to
their investment, that is, a larger cash payout. When the co-operatives
prioritize the price paid to producers, putting short-term decision-making
ahead of the value of the firm, they tend to weaken the long-term strategy
of the co-operative (through underinvestment). As a result, the horizon
problem is a threat to the co-operatives’ sustainability, especially when fac-
ing a crisis on the wine market. We propose to explore the relationship
between the horizon problem of co-operatives and their downstream strat-
egies. This should help us reveal the real long-term commitment of pro-
ducers (co-operative members) to their co-operatives, according to the
strategies chosen, and through this the sustainability of the different types
of co-operatives.
Within the Bordeaux wine co-operatives, we observe that the wine price
(sales per hl) is closely comparable for “traditional” and “union” co-operatives
(Table 21.6). Both types of co-operatives deliver the same price to the produc-
ers per hl on average. However, the lowest value, for one “traditional”
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Table 21.6 Product price and price paid to producers

Sales per hl (€) Price paid to producers (€/hl)
Traditional Obs 71 71
Mean 105 73
Min 30 45
Max 189 132
Union Obs 29 35
Mean 105 74
Min 62 43
Max 170 123
Vertical integration Obs 29 50
Mean 131 105
Min 91 46
Max 255 223
Total Obs 129 156
Mean 111 83
Min 30 43
Max 255 223
Note: Observations are co-operative-year, for example, 37 co-operatives over a 5-year
period (2005–2010)
co-operative, is far below the lowest value observed for co-operatives in

“union”. Moreover, a striking point is that the minimum price paid to pro-
ducers is higher than the output price. It can be interpreted as an extreme case
of the horizon problem. As expected, the output price is higher for vertically
integrated firms (+€26/hl for the average price). The price paid to producers
is also higher (+€31/hl for the average payment).
Then, the margins (before the payment to producers), the obsolescence
ratio and the leverage are, on average, highly similar for each type of co-
operative (Table 21.7). The level of obsolescence is high for all categories of
firms. These levels are far above the 50% which would represent the average
obsolescence of a firm regularly renewing its assets.
21.4.2 T
he Co-operatives and Vertical Integration: Alone
or Through a Union?
The results obtained confirm that the payment to producers is significantly

higher in “vertically integrated” co-operatives (Cadot et al. 2016). The addi-
tional output price (sales per hl) largely explains this additional payment as
the surplus due to belonging to a union is no longer significant and decreases
by about €16/hl (from 23.76 to 8.00) for “vertically integrated” co-operatives
when we introduce the sales per hl in the regression. If we introduce the mar-
gin, we do not see a difference: the output price explains most of the surplus.
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Table 21.7 Margins, obsolescence and leverage

Margins Obsolescence Leverage
Traditional Obs 70 69 71
Mean 76% 64% 0.45
Min 48% 0% 0.02
Max 97% 94% 1.41
Union Obs 29 35 35
Mean 70% 71% 0.37
Min 44% 4% 0.00
Max 94% 94% 1.35
Vertical integration Obs 29 35 102
Mean 70% 67% 0.48
Min 48% 47% 0.00
Max 91% 90% 2.11
Total Obs 128 139 208
Mean 73% 66% 0.45
Min 44% 0% 0.00
Max 97% 94% 2.11
The margin is the difference between the price paid to producers and the
winemaking costs; the asset obsolescence is the ratio of asset amortization on the
gross value of assets; and the leverage is the ratio of medium- and long-term debts
on equity
However, when considering the interaction terms of margin with the down-
stream strategies, we observe that the premium for “vertically integrated” co-
operative members disappears, which means that the surplus obtained by
these producers is directly related to them. The price paid to producers is
highly sensitive to the margin for co-operatives in “union” and less for “tradi-
tional” co-operatives. This may reveal a stronger connection between the co-
operatives’ capacity and the cash transfer to producers for co-operatives in
“union”, explaining why these latter are less risky than “traditional” co-
operatives. For “vertically integrated” co-operatives, the more comfortable
margins may provide a slack, making the price paid to producers independent
of the yearly variations of margin.
There is an almost negligible difference between the price paid to producers
in “traditional” co-operatives, that is, those which sell bulk wine to nego-
ciants, and the price paid to producers in co-operatives which have chosen to
federate into a “union”. By contrast, the “vertically integrated” co-operatives
are able to offer a significantly better price for the production of the co-
operative members. This research shows that “traditional” co-operatives pri-
oritize payment to producers over renewal of assets, while co-operatives in
“union” seem to anticipate the need for investment by a decrease of the price
paid to producers when the capital obsolescence reaches a certain level. This
mechanism would reveal a form of financial constraint which is not observed
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for “vertically integrated” co-operatives. It would come that the “traditional”

co-operatives are prone to short-termism, while co-operatives which have
chosen vertical integration throughout a “union” preserve their future finan-
cial capacities and the co-operatives which have chosen full vertical integra-
tion are able to provide a better price to the producers. However, it is hard to
disentangle these effects of the co-operative strategy from those of the geo-
graphical indication that the wine co-operative can use to brand its wines.
21.5 Conclusion
Altogether, these results show that vertical integration for wine-grape produc-
ers can be carried out at the farm level or collectively via co-operative mem-
bership. In both cases, it seems that operating on the bulk-wine market is not
profitable. Indeed, bulk-wine producers display low financial performance,
and “traditional” co-operatives seem to be affected by short-termism, by pri-
oritizing the payment to producers over the co-operative’s sustainability. As
such, vertical integration appears an efficient way to create value for wine-
grape producers, but it should not stop at the bulk-wine production stage.
They should rather bottle the wine. Moreover, vertical integration requires a
full consideration of costs and investments necessary to perform well. In our
view, this implies specific learning and presents wine-grape producers with
new challenges, whether they choose to perform vertical integration alone or
within a wine co-operative.
ppendix: Number of Wine Farms by Level

A
of Vertical Integration for the Main Wine Regions
(France, Viticulture)
Co-operative
members Bulk Mixed Bottle Others Total
Alsace 13 0 11 8 10 42
Val de Loire Centre 1 14 14 10 12 51
Bourgogne-Beaujolais-Jura- 8 9 15 28 27 87
Savoie
Bordeaux Aquitaine 31 51 39 26 5 152
Sud-Ouest 6 9 5 1 3 24
Vallée du Rhône-Provence 94 18 17 14 6 149
Languedoc-Roussillon 100 32 6 12 7 157
Corse 5 4 4 9 0 22
Total 258 137 111 108 70 684
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mmorag@uchile.cl
22
The Prosecco Superiore DOCG Industry
Structure: Current Status and Evolution
over Time
Eugenio Pomarici, Luigino Barisan, Vasco Boatto,
and Luigi Galletto
22.1 Introduction
In the international wine market, Prosecco is known as the wine produced in
a delimitated area located in Northeastern Italy using at least 85% of Glera
grapes.1 Such area includes nine provinces in the Veneto and Friuli-Venezia
Giulia regions, and the concerned area under vines covers about 28,000
hectares.
According the EU regulation, Prosecco is a wine with a protected designa-
tion of origin (PDO),2 so named because the delimited production area
includes the village of Prosecco (near Trieste), from where the Glera p
roduction
spread out over part of the Veneto and Friuli-Venezia Giulia areas. Prosecco is
produced as sparkling (spumante), semi-sparkling (frizzante) or still wine;
currently nearly all the production is sparkling. The sparkling wine is obtained
1
Other local varieties commonly used are Bianchetta, Verdiso and Perera.
2
According to Reg. 1308/2013, a PDO wine is a wine named with a geographical name identifying the
production area, produced complying with a product specification (disciplinare di produzione in Italian),
that is, a set of rules concerning the production area and grape varieties, yield per hectare and analytical
parameters in wine.
E. Pomarici (*) • L. Barisan • V. Boatto • L. Galletto

Padua, Italy
e-mail: eugenio.pomarici@unipd.it; luigino.barisan@unipd.it; vasco.boatto@unipd.it;
luigi.galletto@unipd.it

https://doi.org/10.1007/978-3-319-98633-3_22
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422 E. Pomarici et al.
by the Martinotti (or Charmat) method; the still wine is obtained by a pri-
mary fermentation (base wine) which then undergoes a secondary fermenta-
tion in pressure tanks, after which it is bottled with an isobaric filling machine
(De Rosa 1987).
Prosecco sparkling wine is one of the most interesting success cases in the
wine business of recent years (Boatto et al. 2016; Rossetto et al. 2011). The
Prosecco success is witnessed by the dramatic increase in supply: the aggregate
supply of sparkling Prosecco wine was about 512 million bottles in 2016, a
fivefold growth compared to 2000.
In the production process of the sparkling Prosecco, it is possible to recog-
nize three main phases technically separable: grape production, processing
(primary fermentation) of grapes to produce base wine, second fermentation
of wine and bottling.3 A production process thus structured allows for the
existence of two intermediate markets for the intermediate outputs: grape
market and base wine market.
Currently the Prosecco production involved 14,500 grape-producing
farms, 1700 plants producing base wine and 600 plants performing sec-
ond fermentation and bottling. Likewise in the whole Italian wine indus-
try, the connection among all these technical units displays a wide variety
of forms of production organization. These are allowed by the existence of
some production phases which can be performed by independent agents
and by the interaction between market segments and not uniform con-
straints determined by production technology in general and economies
of scale in particular (Pomarici et al. 2008; Schamalensee and Willig
1989).
The whole Prosecco production is split into two categories: Prosecco with
denominazione di origine controllata (Prosecco DOC) and Prosecco with
denominazione di origine controllata e garantita (Prosecco DOCG), which, in
the sparkling version, is named Conegliano Valdobbiadene Prosecco Superiore
DOCG (from here CVPS DOCG). DOC and DOCG are the two categories
laid down by Italian wine law4 in order to establish a distinct hierarchy
among Italian PDO wines. DOCG wines include wines of particular value,
whose product specification must fulfill particularly severe requirements. The
Prosecco DOC product specifications require a maximum yield per hectare
equal to 18 tons of grape and in sparkling wine a total acidity content of not
less than 4.5 grams per liter. The CVPS DOCG product specifications
Secondary fermentation and bottling are virtually not separable.

3
Law 238/2016.
4
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The Prosecco Superiore DOCG Industry Structure: Current Status… 423
100
Prosecco Superiore DOCG
90
Conegliano Valdobbiadene Prosecco Docg
Wine production (million bottles)
80
bottiling share on total (%)

Sparkling's bottling share on total (%)
70
60
Sparkling's
50
40
30
20
10
0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Fig. 22.1 Conegliano Valdobbiadene Prosecco DOCG: trends in sparkling wine market
(bottles), 2003–2016. (*Sparkling: Prosecco Superiore DOCG and Superiore di Cartizze
DOCG; Source: Data processing C.I.R.V.E., Conegliano, 2018)
require that grape production is carried out in a particular area inside the
larger DOC production area, corresponding to the Conegliano Valdobbiadene
hills; moreover, it requires a maximum yield per hectare equal to 13.5 tons of
grape and, in sparkling wine, a total acidity content of not less than 5 grams
per liter.
Currently the CVPS DOCG’s production (about 90 million bottles) repre-
sents a share over the total Prosecco supply of about 18%; such relatively small
share represents the top-quality Prosecco, which is rooted in a specific tradi-
tion, terroir and landscape. Also the CVPS DOCG’s production has grown
dramatically in the recent past (Fig. 22.1) being supplied both to the domestic
market (60% in 2016) and to foreign markets (40% in 2016) (Fig. 22.2).
As part of whole Prosecco industry, the Prosecco Superiore DOCG’s supply
involves a smaller number of actors. Referring to 2016 are operating: 3387
grape-producing farms5 (with 7549 hectares), 433 plants producing base
wine, 181 plants performing second fermentation and bottling. Such hierar-
chy of figures reflects that existent in Italy, and the plants working at the end
of the supply chain are connected to the upper echelons through different
organization models.
5
Specialized firms in grape production linked to private and cooperative wineries.
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60.0
Italy Export
50.0
40.0
Million bottles
30.0
20.0
10.0
0.0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Fig. 22.2 Conegliano Valdobbiadene Prosecco DOCG: trends in sparkling wine sales
on domestic and foreign markets, 2003–2016. (Source: Data processing C.I.R.V.E.,
Conegliano, 2018)
The aim of the current chapter is to analyze the evolution and the current
structure of the Prosecco Superiore DOCG’s industry, giving qualitative and
quantitative evidence to the role of the different models of supply chain illus-
trated in Chap. 3 and shedding light on the interaction connecting the differ-
ent supply chains via the intermediate markets of grape and base wine.
Already in 1976, Merlo and Favaretti offered a framework for understand-
ing the Prosecco DOCG’s supply chain, raising a number of research ques-
tions (Merlo and Favaretti 1976). Later, starting in 2003, the organization of
the Prosecco production in the Conegliano Valdobbiadene area was continu-
ously monitored in order to give an informative support to the activity of the
local producer consortium (Consorzio di Tutela Vini Conegliano
Valdobbiadene Prosecco DOCG).
22.2 Data and Methodology

The analysis of the CVPS DOCG’s industry is carried out by integrating data
(2010–2016) coming from three sources:
(a) AGEA (national agency in charge of monitoring the wine market), for
data concerning official declaration about harvested grapes and wine
production
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(b) Valoritalia (certification body in charge of CVPS production control),6

for data about the exchanges of grape and wine across agents involved in
the Prosecco Superiore supply chain
(c) The Conegliano Valdobbiadene Prosecco District Observatory, offering a
database built up by the yearly survey on wineries bottling Prosecco
Superiore DOCG7
The analysis of the last database lets us classify the CVPS DOCG bottling
wineries according to one of the supply chain models existing in the Italian
wine industry, as identified in Chap. 3:
The agricultural supply chain or wine growers chain, which represents an inte-
grated vertical coordination model based on bottlers directly controlling the
whole production process and delivering to the final market wine obtained
mainly from self-produced grapes.
The cooperative supply chain, which represents an integrated vertical coordi-
nation models led by the wine cooperatives with bottling facilities controlling
the whole production process and delivering to the final market wine pro-
duced from grapes harvested by cooperative members.
The industrial supply chain or transformer-bottlers’ chain, which represents a
de-integrated vertical coordination model characterized by actors performing
mainly grape processing and sparkling wine production, with no or rather
small vineyards. Transformer-bottlers are supplied by specialized grape growers
or even by firms belonging to the agricultural supply chain.
The bottlers’ supply chain or plain bottlers’ chain, which in the case of the
CVPS DOCG’s industry represents the de-integrated vertical coordination
model characterized by actors performing mainly second fermentation and
bottling. Plain bottlers are mostly supplied by vintners or by wine growers and
wine cooperatives.
The association to the different supply chains of private wineries was car-
ried out considering the main source of grape and wine. Only wineries bot-
tling wine coming exclusively or mainly from grape of own production were
classified as typical agricultural firms.
Data coming from AGEA and Valoritalia allowed the understanding of the
quantitative consistency and the role in terms of production of the upward
agents: grape growers and base wine producers (vintners).
According to EU and Italian legislations.

6
The Interdepartmental Centre for Research in Viticulture and Enology (CIRVE) of the Padova
7
University is in charge of the survey.
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The analysis of data concerning wineries associated to the considered sup-

ply chain allowed to trace the flow of grape and base wine inside each supply
chain and the exchanges between the supply chains. In particular, analysis of
data concerning wineries belonging to the non-integrated supply chains
allowed to quantify the input (grape or wine) they receive from upward agents
(grape growers or vintners) or from agents belonging to the integrated supply
chains.
22.3 T
he Conegliano Valdobbiadene Prosecco
Superiore DOCG Industry Structure in 2016
22.3.1 Firm Models in the Industry
As the CVPS DOCG production chain is the combination of three separate

phases, potentially it may involve six possible firm models. Besides the fully
integrated model, where the three production phases are performed by the
same firm, three different specialization models for each production phase
and two partially integrated models (namely grape production and produc-
tion of base wine or production of base wine and secondary fermentation and
bottling) are technically possible.
In the CVPS DOCG’s production only five out of six possible firm models
are present, since actors specialized in base wine production from purchased
grape are not present. On the other hand, the fully integrated model is pres-
ent in the two different forms of agricultural private firm and cooperative
firm. The supply of the Prosecco Superiore DOCG’s industry is, therefore,
the combined output of both the integrated and the de-integrated supply
chains.
Figure 22.3 offers a pictorial description of the structure of the industry
and, to start with, the figures concerning the quantitative consistency of firms
representing the different models in terms of number of production phases
performed by the same firm. Among firms that perform the whole process,
there are 111 private producers and 7 cooperatives. Farms specialized in grape
production (grape growers) represent a rather widespread model, nearly 824
followed by about 250 firms performing only grape production and process-
ing to obtain the base wine (vintners). Firms specialized in secondary fermen-
tation and bottling and firms producing the sparkling wine purchasing grape
are relatively few, about 30 for each model, but with an important role in the
industry.
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Actors in integrated supply

Conegliano Valdobbiadene Prosecco Docg Actors in de-integrated supply chains
chains
Wine Wine Grape Transformers

Vintners Plain bottlers Total
growers cooperatives growers bottlers
Companies 111 7 824 31 252 32 1,257

Technical units Grape growing 111 2,143 824 28 252 29 3,387
Grape processing 111 7 31 252 32 433
2nd fermentation/bottling 111 7 31 32 181
Grape Ha 1,483 2,569 1,911 157 1,366 62 7,549

production Output (t) 19,143 33,155 24,671 2,031 17,638 803 97,441
Net sale (t) 24,671

Intermediate
Total net exchange (t) 24,671
grape market
Net purchase (t) 3,691 - 15,456 301 5,223 25%
Base wine Processed grape (t) 22,834 33,155 17,487 17,939 6,026 97,441
production Produced base wine (hl) 159,838 232,085 122,409 125,572 42,182 682,086
Intermediate Net sale (hl) 51,586 39,498 125,572

base wine Total net exchange (hl) 216,656
market Net purchase (hl) 324 2,16,332 32%
Bottled base wine (hl) 1,08,252 1,92,587 1,22,733 258,514 682,086

2nd Bottles produced (mio. bott.) 11.2 21.2 15.3 37.5 85.2
fermentation Average production (.000 bottles) 101 3,029 494 1,172
& bottling
Prosecco SuperioreDOCG's market share:

Total volume (in % of bottles sold) 13.1% 24.9% 18.0% 44.0% 100.0%
Total value (in % of bottles sold) 13.9% 22.6% 18.8% 44.8% 100.0%
- Italy (in % of bottles sold) 52.4% 59.7% 64.6% 53.8%
- Export (in % of bottles sold) 47.6% 40.3% 35.4% 46.2%
Fig. 22.3 Conegliano Valdobbiadene Prosecco DOCG’ supply chains, 2016. (*Prosecco
Superiore DOCG Sparkling; = Production linked to the related own firms;
Source: Data processing C.I.R.V.E., Conegliano, 2018.)
22.3.2 S
upply Chains’ Features and Contribution
to Industry Supply
Figure 22.3 highlights the contribution to the Prosecco Superiore DOCG

production by the four supply chains.
Wine growers contribute to supply 13% in volume (the lower share) and
14% in value. The average production by firm is about 100,000 bottles, also
the lowest in the industry. Their bottling plant is, on average, rather small.
Not all the firms in this supply chain exploit their whole production potential
on the final market and supply the de-integrated supply chains with 24% of
the base wine they produce.
Wine cooperatives contribute to supply one-fourth in volume and one-fifth
in value (second share). The average production by firm is the largest, about
three million bottles. Wine cooperatives process grapes produced by about
2200 associated grape-producing farms which control 2570 hectares. Some of
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the wine cooperatives transfer a share of the base wine to other wine coopera-
tives or to the de-integrated supply chains.
Transformer-bottlers contribute to supply nearly one-fifth in volume and a
higher share in value. The average production by firm is about 500,000 bottles, a
relatively small quantity but higher than wine growers. Anyway, some wineries
belonging to this supply chain are among the top bottlers. Specialized grape
growers mostly supply transformer-bottlers (accounting for 91% of their needs)
and therefore these actors lead a partially de-integrated supply chain, where the
coordination of wineries and grape producers is sought after by the grapes inter-
mediate market. In the bottling process, some of the actors integrate the self-
produced base wine with purchases on the base wine intermediate market; but
others are not able to sell as bottled wine all the base wine they produce and,
consequently, sell wine on the intermediate base wine market. Transformer-
bottlers own, in few cases, small vineyards, usually dedicated to special products.
Plain bottlers contribute with the larger share to supply 44% in volume and
almost the same in value. The average production by firms is quite large, the
second in the industry, about 1.2 million bottles. They are mostly supplied by
vintners (accounting for 70% of their needs) and therefore these actors lead a
de-integrated supply chain where the coordination of bottling wineries with
upward actors or actors belonging to other supply chains is sought after in the
intermediate market of base wine. Also plain bottlers own in few cases small
vineyards and grape processing, usually dedicated to special products.
The analysis of average prices for direct sales and sales to commercial chan-
nels reveals some differences in product differentiation strategies of the con-
sidered supply chains, which are more evident in direct sales (Table 22.1). The
transformer-bottler wineries appear more oriented to high prices, while wine
cooperatives show lower prices.
Table 22.1 Prosecco Superiore DOCG price differentiation by type of supply chain,
wine destination and sizea on domestic market, 2016
Total Very big Big Medium Small
Wine growers Direct sale 6.14 7.35 6.74 6.20 5.89
Wholesales 5.31 5.28 5.32 5.37 5.21
Cooperatives Direct sale 5.60 5.71 – – 4.50
Wholesales 4.55 4.55 – – –
Transformer-bottlers Direct sale 7.11 8.73 6.33 6.52 5.49
Wholesales 5.31 5.44 5.09 5.31 5.09
Plain bottlers Direct sale 7.06 7.24 6.02 7.32 5.22
Wholesales 5.17 5.13 6.04 4.98 4.42
a
Bottling sizes (bottle × 1000 by year): very big > 1000; big 1000–500; medium
500–150; small < 150
Source: Data processing C.I.R.V.E., Conegliano, 2018
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All the supply chains contribute to the delivery to domestic and foreign mar-
kets but with some differences. Plain bottlers are more oriented to export, while
transformer-bottlers are more oriented to the domestic market (Fig. 22.3).
A last element of differentiation among supply chains is the share of pro-
duction bottled for third parties (large retailer or other traders), which deliver
to the market the wine with their own brands. Wine growers and plain bot-
tlers in the interest of third parties contribute a relatively small share of their
production, respectively, 20% and 12%, while wine cooperatives and
transformer-bottlers in the interest of third parties contribute a larger share of
their output, about 60%.
22.3.3 Intermediate Markets in the Industry
Since the de-integrated supply chains contribute to the final output of the
industry by 62%, the intermediate markets assume a structural role in the
CVPS DOCG’s industry. In fact, as already indicated, they allow not only
vertical relations but also transfers between firms belonging to different sup-
ply chains or the same supply chain. Anyway, in spite of the fact that exchange
flows among individual actors have many trajectories, flow analysis shows that
the integrated chains are net suppliers of actors operating in the non-integrated
production chains as transformer-bottlers and plain bottlers.
The grapes intermediate market relies largely (93% of the net exchange) on
the supply of 824 simple grape growers. Minor suppliers are farms belonging
to the wine grower chain; their contribution as suppliers varies every year
according to price evolution and the quantity of their harvest. Main purchas-
ers are the transformer-bottlers (62% of the net exchange), while minor pur-
chasers are firms belonging to the wine grower chain looking for grapes in case
the customers’ demand exceeds their own grape availability, and, in a few
cases, plain bottlers, owners of pressing facilities, intervene as grape buyers.
Total net exchanges represent about 25%8 of the whole grape production,
while total exchanges are near 30%. Transactions are of on-the-spot ones or,
in many cases, based on long-lasting contracts or informal agreements.
Intermediaries play a relevant role.
The base wine intermediate market is supplied by different types of actors.
The largest suppliers are vintners followed by wine growers, while wineries
belonging to the plain bottlers’ chain are the main purchasers. The most impor-
tant marketplace is at the Camera di Commercio in Treviso. Exchanges of grapes
8
Grapes delivered by cooperative members to the cooperative processing facilities are kept out of this
estimation.
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and wine are negotiated there each Tuesday. Some brokers are recognized as the
most influential in the base wine market. Total net exchanges represent about
32% of the full production, while total exchanges are likely near to 50%.
22.3.4 S
upply Concentration and Analysis by Winery
Dimension
The Prosecco Superiore DOCG supply is rather concentrated (Fig. 22.4), as

it appeared to be also ten years ago (Galletto and Bianchin 2009). About two-
thirds of the total production is delivered to the market by 20 wineries, 11%
of the population, and the larger four wineries produce 30% of the total out-
put (Table 22.2).
Very big wineries (yearly production over one million bottles) are present
in all supply chains, but their number is rather small among wine growers;
however, wine growers represent 90% of small wineries and one-fourth of
medium wineries (Table 22.3). One-half of the very big wineries belong to
the plain bottlers’ supply chain and one-half of the big wineries belong to the
transformer-bottlers’ supply chain.
100
90
80
Volume (cumulaive rates)
70
60
50
40
30
20
10
0
0
10
20
30
40
50
60
70
80
90
100
110
120
130
140
150
160
170
180
Number of firms
Fig. 22.4 Conegliano Valdobbiadene Prosecco DOCG: concentration index, 2016.

(Source: Data processing C.I.R.V.E., Conegliano, 2018)
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Table 22.2 Conegliano Valdobbiadene Prosecco’s companies: concentration index,

2008–2016
Year Concentration indexa
HHI CR4 CR8 CR10 CR20
2008 316 26.9 42.0 47.3 66.8
2016 346 29.9 45.7 51.4 67.8
a
HHI, Herfindahl-Hirschman’s index; CRx, concentration ratio for the top X firms
Table 22.3 Prosecco Superiore DOCG producers’ distribution by type of supply chain
and bottling sizea, 2016
Total Very big Big Medium Small
Wine growers N. 111 3 6 21 81
% 61.3% 10.0% 28.6% 52.5% 90.0%
Cooperatives N. 7 6 0 0 1
% 3.9% 20.0% 0.0% 0.0% 1.1%
Transformer-bottlers N. 31 5 10 10 6
% 17.1% 16.7% 47.6% 25.0% 6.7%
Plain bottlers N. 32 16 5 9 2
% 17.7% 53.3% 23.8% 22.5% 2.2%
Total N. 181 30 21 40 90
% 100.0% 100.0% 100.0% 100.0% 100.0%
a
Bottling sizes (bottle × 1000 by year): very big > 1000; big 1000–500; medium
500–150; small < 150
22.4 E
volution of the Industry over Time
(2010–2016)
The output of all supply chains increased substantially over the period
2010–2016, but with a different rate (Table 22.4). The production of wine
growers and transformer-bottlers shows a higher increase than average (47%),
while the wine growers’ expansion was lower than average. Anyway, these
differences in the growth rate caused only small changes in the share of the
four supply chains on total production, with only a slight increase of
transformer-bottlers and decrease of plain bottlers and wine growers.
The number of wineries belonging to the four supply chains changed dif-
ferently. Wineries belonging to the wine growers and plain bottlers’ supply
chains increased (respectively, by 16% and 14%), while wine cooperatives
decreased by one unit and transformer-bottlers by 9%. The interaction
between changes in aggregate production and number of wineries of the sup-
ply chains determined different changes in the average production of winer-
ies. The average production of wineries belonging to plain bottlers’ supply
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Table 22.4 Prosecco Superiore DOCG industry structure: evolution over the period analyzed, 2010–2016
Changes (%)
2010 2011 2012 2013 2014 2015 2016 2010–2016a
432
Data concerning whole industry:

Prosecco Superiore DOCG production (million bottles) 57.8 61.2 62.7 66.5 73.4 78.4 85.2 47.4%
Prosecco Superiore DOCG wineries (units) 166 168 168 170 183 187 181 9.0%
Wine growers:
Volume sold (million bottles) 8.3 9.7 8.9 10.7 12.3 12.7 11.2 34.9%
Grapes processed (%) 19.3% 18.9% 19.5% 20.7% 21.1% 19.4% 23.4% 4.1%
Bottled market share (%) 14.4% 15.8% 14.2% 16.1% 16.8% 16.2% 13.1% −1.3%
E. Pomarici et al.
Average Prosecco DOCG sold per winery (0.000 bottles) 87 97 88 102 111 110 101 16.1%
Bottling under contract (%)a 12.9% 13.1% 7.0% 9.4% 7.2% 19.9% 6.70% −6.2%
Wine cooperatives:
Prosecco Superiore DOCG wineries (units) 8 8 8 7 7 7 7 −12.5%
Bottling under contract (%)a 12.4% 18.5% 21.5% 33.8% 41.8% 60.7% 65.9% 53.5%
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Transformer-bottlers:
Prosecco Superiore DOCG wineries (units) 34 28 27 28 28 30 31 −8.8%
Bottled market share (%) 14.40% 13.2% 15.7% 15.8% 14.4% 15.5% 18.00% 3.6%
Plain bottlers:
a
Share on total bottles of Prosecco Superiore DOCG sold without own brands
chains remained unchanged, while production increased for those wineries

belonging to other supply chains. The higher increase is shown by
transformer-bottlers.
The current high share of production supplied to third parties is the result
of a dramatic increase which occurred over the last six years. Such increase has
been particularly high among wine cooperatives and transformer-bottlers.
22.5 Final Remarks

The CVPS DOCG’s industry, which shows a remarkable complexity in its
structure, reflects, despite some peculiarities, the general structure of the
Italian wine industry. The multiple forms of production’s organization appear
consistent with demand differentiation and the varied intensity of economies
of scale at diverse levels of the production process (Silvestre 1987). The result
is the availability of a production with competitive costs, despite the fragmen-
tation in the grape production phase. Moreover, the intense interrelation
between different types of actors plays a relevant role in making the supply of
final markets (Lambert and Cooper 2000) effective and flexible. Such features
of the industry are, together with the quality of the product, key elements of
the CVPS DOCG’s competitiveness and can be considered representative of
the competitiveness of Italian wine supply as a whole.
Although non-agricultural actors play the major role on the final market of
the CVPS DOCG, and one-fourth of the final output relates to the wine
cooperatives, wineries belonging to the wine grower chain have a quite rele-
vant share of the aggregate output in volume, equal to 13%. Nevertheless,
such share is lower than at national level (20%), while lower is also the relative
price positioning of wine growers with respect to the Italian production as a
whole.
The minor role of wine growers and their lower average price positioning is
therefore a peculiarity of the CVPS industry and is consistent with the nature
of the product, sparkling wine, which usually requires very expensive brand-
ing strategies to command high prices. Up to now transformer-bottlers have
been more successful (the same happens in Champagne). Anyway, the inter-
temporal analysis (2010–2016) demonstrates that the increase of the CVPS
DOCG’s production has affected all supply chains, keeping almost unchanged
their shares over the aggregate output, while there is some evidence that wine
growers are progressively learning how to manage the relationship with this
peculiar type of wine market. A further specificity of the CVPS DOCG’s
industry is the production share sold to third parties, which apply their own
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brands to the product. If the interest of large retailers is growing in the Italian
wine industry as a whole, their growth rate has been particularly high for all
brands of Prosecco, as a consequence of the exceptional success of this wine,
which relies on the fact that the Prosecco name is working as a brand on the
market.
The CVPS DOCG’s industry appears to be, today, in excellent condition
and represents, together with the Prosecco DOC, the most dynamic element
of the Italian wine industry. Nevertheless, the likely evolution of the market
in the next future will cause significant stress to this industry. The availability
of grapes and wine will be a crucial element in Prosecco Superiore DOCG’s
business as the competition among bottlers will increase. In addition, the
extremely high cost of vineyards entitled to produce CVPS DOCG and the
difficulties to obtain the authorizations for planting new vineyards make
almost prohibitive the establishing of new large fully integrated wineries.
In this scenario the crucial element for large players will be the ability to
further develop the current network of loyal suppliers (grapes, base wine or
sparkling wine), motivating them with adequate contracts and incentives. In
this perspective, a key factor of success will be the possibility to enjoy econo-
mies in the distribution and marketing phases. This would determine suffi-
cient added value to share with suppliers and the possibility to assist suppliers
in delivering particular types of Prosecco.
References
Boatto, V., L. Barisan, and E. Pomarici. 2016. Posizionamento rispetto al mercato. In
Rapporto Annuale 2016. Dalla Denominazione al mondo: il successo internazionale
del Conegliano Valdobbiadene Prosecco Superiore Docg, 34–71. Pieve di Soligo
(Treviso): Conegliano Valdobbiadene Prosecco DOCG.
De Rosa, T. 1987. Tecnologia dei vini spumanti. Brescia: Aeb.
Galletto, L., and F. Bianchin. 2009. Le aziende vitivinicole del Distretto del Prosecco
DOC di Conegliano Valdobbiadene: un’analisi campionaria delle innovazioni, dei
rapporti distrettuali e del posizionamento strategico. Economia e Diritto
Agroalimentare 14 (1): 77–97.
Lambert, D.M., and M.C. Cooper. 2000. Issues in supply chain management.
Industrial Marketing Management 29 (1): 65–83. https://doi.org/10.1016/
S0019-8501(99)00113-3.
Merlo, M., and G. Favaretti. 1976. Effetti economici della legge sulla denominazione
d’origine dei vini. Il Prosecco di Conegliano e Valdobbiadene. Agricoltura delle
Venezie XXX (4): 122–164.
mmorag@uchile.cl
Pomarici, E., S. Raia, and R. Tedesco. 2008. Dimensione ottimale delle imprese nel
mercato vitivinicolo: riflessioni su alcuni casi di studio. Bulletin de l’OIV 81 (926):
261–268.
Rossetto, L., V. Boatto, and L. Barisan. 2011. Strategies and interpreting models of a
reformed DOC: The prosecco case study. Enometrica 4 (1): 57–77.
Schamalensee, R., and R.D. Willig. 1989. Handbook of industrial organisation.
Amsterdam: North-Holland.
Silvestre, J. 1987. Economies and diseconomies of scale. In The New Palgrave: A dic-
tionary of economics, 80–84. London: The Macmillan Press Ltd.
mmorag@uchile.cl
23
International Perspectives on Backwards
Vertical Integration
23.1 Introduction
This chapter provides a broad understanding of the motivations and debates
related to vertical integration backwards, through concrete examples or prac-
tical cases. Vertical integration backwards in the wine industry was extensively
discussed in the literature (see, e.g. Sidlovits and Kator 2007). However, those
contributions focus on one region or country or a particular type of firm (e.g.
wine co-operatives).
Without pretending to cover all the dimensions of vertical integration, we
introduce hereafter, through several examples, the causes or consequences that
lead firms to practice vertical integration.
Conceptual approaches to vertical integration were already discussed else-
where. Briefly, the literature on vertical integration of firms points out two
main explanations for the adoption of such a strategy. Noneconomic theo-
ries—mainly institutional theory and the theory of the dependency of the
resources (DiMaggio and Powell 1983; Pfeffer and Salancick 1978)—state
that organizations engage on vertical integration without taking into account
the efficiency criteria. By contrast, theories on economics argue that
A. Coelho (*)
e-mail: alfredo.coelho@agro-bordeaux.fr
E. Montaigne
Department of Agricultural Economics, Montpellier Supagro, Montpellier, France
e-mail: etienne.montaigne@supagro.inra.fr

https://doi.org/10.1007/978-3-319-98633-3_23
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438 A. Coelho and E. Montaigne
o rganizations adopt the structures maximizing firms’ efficiency (Nelson and

Winter 1982; Williamson 1975). As we will see hereafter, these contrasting
views are also part of the debate on vertical integration backwards in the wine
industry.
This chapter is structured in two parts. The first part discusses the different
paths of vertical integration backwards among international wine firms. The
second part highlights the constraints wine firms face in Europe, particularly
in France, to vertically integrate the upstream of the wine chain. Those con-
straints are not directly related to the existence of a mechanism to regulate the
grape-growing potential but more due to the way a particular country trans-
lated the European legislation on the vine planting rights scheme to the
national environment.
23.2 V
ertical Integration Backwards in the Top
International Wine Firms
Vertical integration is a common practice among international wine firms.
Integration strategies are not new phenomena in this industry because histori-
cally most wine firms always tried to control the production potential (sourc-
ing of wines or grapes). For example, Geraci (2004) explains the trend toward
vertical integration in Californian vineyards and wineries since the 1970s as a
means to improve firms’ efficiency—all sizes concerned—and firms’ resilience
toward production cycles.
This chapter will address only the strategies of vertical integration back-
wards concerning grape growing and other vineyard-related operations; how-
ever, vertical integration at the upstream of the value chain may involve other
operations, substituting some of the activities involving suppliers and services
outsourced. Among the most well-known examples, we can point out the case
of E&J Gallo who built a glass factory at Modesto (California) to produce
glass bottles close to the winemaking and bottling facilities. Other examples
include wine firms acquiring shareholdings in oak barrels manufacturers,
nurseries, or cork manufacturers.
The comprehension of vertical integration strategies backwards can be
achieved through the analysis of the motivations for the restructuring of the
leading wine firms in the last three years. Those motivations can be synthe-
sized as follows (see, e.g. Coelho and Rastoin 2004):
• Securing wine or grapes in quantity and quality

• ‘Scale’ and ‘scope’ effects
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International Perspectives on Backwards Vertical Integration 439
• The acquisition of wine brands, namely, in the premium segments (popular

premium, premium, super-premium, and ultra-premium)
• The access to distribution networks, particularly in the export markets
Securing wine or grapes procurement in quantity and quality is therefore

one of the main motivations for restructuring the leading international
wineries.
With respect to grape supply, it is first necessary to distinguish between
firms practicing (partial or full) vertical integration from those who buy
directly from third parties. Firms that do not practice full vertical integration
backwards (i.e. firms do not directly own vineyards) may opt to buy grapes or
wine in the spot market or, in alternative, to establish contracts with suppliers
as grape growers and bulk wine providers (see, e.g. Montaigne et al. 2007).
Firms can buy grapes or wine through medium- to long-term contracts.
The establishment of grape contracts is not so widespread in Europe but in
some regions contracts may be a typical way of ensuring supplies (quality and
volumes) (e.g. Alsace, Champagne, and Vin de Pays des Sables du Lion) (see,
e.g. Goodhue et al. 2002; Franken 2012; Longbottom et al. 2013; Montaigne
and Sidlovits 2003). Therefore, in some circumstances, grape contracts may
be useful to reduce the risks and ensuring grape quality levels required by the
buyers as those grapes may not be available in the spot or open markets. In
Argentina, New Zealand, Hungary, and California, the wineries introduce
alternative mechanisms of coordination to source quality grapes adapted to
the segments of the market (super-premium, ultra-premium, etc.) (see Codron
et al. 2013; Montaigne et al. 2005).
Most of the leading wineries across the world need to establish contracts
with grape growers or other suppliers to meet their needs in terms of volume
and quality. Grape contracts may range from informal (i.e. ‘handshake’) to
formal and detailed agreements. Contracts may include more than 30 pages
of clauses, including technical practices, supervision, bonuses, and penalties.
Unfortunately for the growers, most of the formal contracts do not precise the
prices to be paid for the grapes. Likewise, concentration of wine firms increases
the power of the leading wineries and the dependency of the grape growers
from those firms.
Other ‘hybrid’ agreements include the (total or partial) sale of vineyards
owned by a major winery to a real estate investment trust (REIT) followed by
a ‘lease-back’ agreement of the same vineyards. This strategy is convenient for
wine firms planning to reduce the amount of tangible assets on their own
balance sheets and benefiting from the leverage effect of the financial costs
paid during the lease-back period. As an example, Diageo Château & Estate
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Wines sold more than 800 hectares of vineyards in California in 2010 to the
real estate investment firm Realty Income and then signed a 20-year lease-
back deal (with an option to extend it to more 80 years).
Among the major wine firms, firms focus primarily on the management of
the wine brands and establish long-term contracts with key and high quality
wine suppliers in different geographies to ensure icon wine, variety and secure
the sourcing. In the USA, E&J Gallo adopted this strategy for some of its core
brands. Among the wines imported by E&J Gallo from third countries, it
includes the following brands owned by Gallo: Italy (Ecco Domani, Bella
Sera, Da Vinci, etc.), France (Red Bicyclette and Pont d’Avignon), Chile
(Viña Chilcaya), Australia (Black Swan), and so on. This strategy provides
more flexibility and a focus in the management of the brands as the compa-
nies do not need to ensure the management of the vineyards, which are man-
aged by third parties (costs and risks related to the management of the
vineyards are shared or transferred to partners).
Mergers and acquisitions are also a means for diversifying grape supplies
beyond firms’ home country. For example, when Foster’s Group (Australia)
bought Beringer in California (Château Saint Jean, Chateau Souverain,
Meridian Vineyards, Beringer Vineyards, Stag’s Leap, and St. Clement
Vineyards) (2000), it became less dependent on the supplies of grapes and
wine produced in Australia through its own wine branch (Mildara Blass). The
new entity was renamed Beringer Blass and became the world’s largest pre-
mium wine company. In an opposite move, Constellation Brands (USA)
acquired BRL Hardy (Australia) in 2001 creating at the time the largest wine
company in the world.
The supply of wines from third parties is a strategic choice helping firms to
expand on emerging markets. For example, the case of a Chinese leading firm
who has signed two partnerships: one in Canada for the export of ice wine to
China and, in another case, in New Zealand for the export of wines to China.
This strategy entails some constraints such as transportation costs and national
or regional excise duties (e.g. in the case of the states of Karnataka and
Maharashtra in India) which may reduce margins considerably.
Vertical integration upstream is an important issue in some protected
designated areas (PDOs) (e.g. Champagne). The cases of the Lanson
International and Taittinger illustrate this issue. Grapes in Champagne are a
unique and relatively scarce resource. Initially, when the champagne house
Lanson International was put on the market for sale in 2005, it attracted
many potential bidders. However, Lanson International did not directly
own any vineyards (grapes were sourced through contracts). At the same
time, another champagne house was put on the market for sale—Taittinger—
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which controlled more than 60% of the volume of grapes needed for its own
production. Therefore, most potential buyers for Lanson International
moved away as the size of the vineyard owned by the competitor Taittinger
represented an exceptional and unique opportunity to control a vineyard in
Champagne. Vineyard control in Champagne is of particular interest as
beyond the constraints related to the scarcity of vineyards available for pur-
chase, both the price of grapes (roughly around €5/kg) and the prices of
land with vineyards (average prices reaching more than €1.2 million/hectare
in 2016) are extremely high.
In the case of a champagne maker, the non-integration of grape production
decreases investments (in vineyards) and ensures flexibility, but it becomes a
risky strategy whenever harvests are low. Moreover, the absence of direct own-
ership over the grapes can prevent firms’ expansion plans.
Buying wine from the vineyards of New World producing countries or
from traditional producing countries and the transportation of those wines to
major importing markets (USA, UK, Germany), supplying the main brands,
particularly for the entry-level still wine ranges, translate into an emerging of
international wine sourcing.
These two examples—vertical integration upstream and sourcing region-
ally and globally—illustrate two types of strategies, often interlinked, charac-
terizing today’s global wine industry:
• Strategies for controlling resources (focus on the vertical integration

backwards)
• Strategies of flexibility (focalization on brands and distribution channels)
The first strategy is based on the acquisition of unique and irreversible

physical assets (land, vineyards, farm equipment, winemaking, and storage
facilities). Rather this pattern corresponds to an institutional and cultural
environment typical of PDO wines; that is, firms are strongly embedded in
the territories. In the second case, efforts are market-oriented with a focus on
finding new customers and maintaining the customer/buyer basis. Therefore,
this illustrates a dichotomy between, on the one hand, a strategy based pri-
marily on tangible investments (i.e. a ‘supply-driven strategy’) and, in the
second case, a strategy based on intangible investments (i.e. a ‘marketing-
driven strategy’) (see Gereffi 1999).
Vertical integration lowers transaction costs and assures regular and con-
stant supply of grapes. Coordination issues may encourage integration back-
wards. Vertical integration of the vineyards also protects against price increases.
For example, in recent years grape growers in the South of France were
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involved in strong protests (voiding tanks containing foreign wines in the

facilities of French importers, stopping Spanish trucks in the highway carry-
ing bulk wine, etc.) against the important price gap between French and
Spanish entry-level wines. By integrating the vineyards, wineries may be able
to avoid fluctuations on prices in the open market.
23.2.1 B
ackward Vertical Integration: Lessons
from the Top 40 World Wine Firms
Among the top 40 world wineries (see Coelho and Rastoin 2004; Coelho
2013), we identified the top 12 vineyard owners. The top holders include a
second-tier French co-operative (Vinadeis) and three Italian three-tier co-
operatives (Caviro, Cavit, Riunite & Civ + GIV). Co-operatives are ‘hybrid’
organizations and their vineyards tend to be directly owned by members, not
by the co-operatives themselves. However, in the last few years, the advanced
average age and retirement of members (lack of successors and new young
grape growers) and major grubbing-ups of vineyards in Southern European
countries (France, Spain, and Italy) (shrinking of the sourcing potential) led
these co-operatives to purchase or lease land with vineyards. The direct
involvement of wine co-operatives in the control of vineyards is a growing
movement, but at the very beginning. The vertical integration backwards by
wine co-operatives is still influenced by strong legal, institutional, and finan-
cial constraints (Fig. 23.1).
Concerning other leading wine firms (i.e. non-co-operatives), the above
table suggests a link between vineyard ownership and the internationalization
of firms. At first, the internationalization of wine firms through the ownership
of vineyards contributes to diversify the supply of wines from different geog-
raphies and origins. At the international level, Cavit (Italy) is the only wine
co-operative owning wine-related assets outside the home country, which
owns a major shareholding in the German sparkling wine producer Kessler
(Württemberg).
International wine brands need to ensure a stable quality of wines and vol-
umes to supply buyers. Most of the international wine firms are not com-
pletely autonomous as they need to purchase grapes or bulk wine through
contracts or in the spot market.
Vertical integration backwards also allows companies to diversify the geog-
raphies of the vineyards through different varietals, soils, and microclimates.
This strategy is particularly developed by the leading Chilean wine
firms (Concha y Toro, Viña San Pedro Tarapacà Wine Group).
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Caviro (ITA)
Yantai Pioneer Changyu (CHN, FRA, SPA)
Vinadeis (FRA)
TWE (AUS, NZE, USA, ITA)
Concha y Toro (CHI, ARG, USA)
E&J Gallo (USA)
Constellaon Brands (USA, NZE, CAN, ITA)
Grupo Peñaflor (ARG)
Pernod Ricard (FRA, AUS, ARG)
Cavit (ITA, GER)
Riunite & CIV + GIV (ITA)
San Pedro Tarapacà Wine Group (CHI, ARG)
0 5000 10000 15000 20000 25000 30000 35000
Fig. 23.1 The 12 leading world wine producers by vine surfaces in 2016 (ha). (Source:
Annual Reports, International press)
23.2.2 E
xpanding Vertical Integration: Greenfield
Investments or Mergers and Acquisitions?
International wine firms have the opportunity to integrate vertically the vine-
yards through two main strategies, either greenfield (ex nihilo) investments or
mergers and acquisitions (brownfield investments). Both strategies are suit-
able and can be successful for the world leading wineries; however, mergers
and acquisitions tend to be more expensive and risky. Among the top world
wine firms, Constellation Brands (USA) and Treasury Wine Estates (TWE)
(Australia) expanded their vineyard surfaces through major mergers and
acquisitions of wineries in different locations (see hereafter).
Exhibit 23.1 Vertical Integration Backwards Through Mergers and

Acquisitions: The Example of TWE (Australia)
2001: Southcorp (Australia) merges with Rosemount (Australia)
Southcorp owned 6070 hectares of vineyards and joint ventures in Languedoc
(France) and California.
Rosemount held 2023 hectares of planted vineyards and a joint venture with
Robert Mondavi Winery.
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2005: Foster’s Group (Australia) acquires with Southcorp (Australia)

Southcorp owned 8063 hectares of vineyards planted in Australia. The target
main brands included: Penfolds, Rosemount Estate, Lindeman’s, Wynns
Coonawarra Estate.
2011: Demerger of the Foster’s Brewing (Australia) beer and wine activities
The wine activities of the new ‘pure player’ were renamed Treasury Wine
Estates (TWE).
2015: Treasury Wine Estates (Australia) acquires Diageo (UK) wine operations
The acquisition of Diageo Château and Estate operations from Diageo helped
TWE to increase ‘masstige’ (i.e. wines positioned as prestigious and affordable in
the mass-market segment) and ‘luxury’ supply of wines. Diageo Château and
Estate operations include vineyards and wineries in the USA (Beaulieu Vineyards,
Sterling Vineyards, Acacia, Provenance, and Hewitt) and the UK (Blossom Hill).
2016: Treasury Wine Estates (Australia)
TWE is one of the top 3 world wine multinationals and owns more than 14,000
hectares of vineyards (Australia, New Zealand, USA, and Italy). The last opera-
tions show a clear link between vineyard ownership and vineyard location/qual-
ity and brand building in the premium and luxury segments.
Due to the absence of vine planting rights schemes similar to the one in the
European Union (EU), leading Chilean wine producers expanded their vine-
yard plantings through different investments in Chile and Argentina. Concha
y Toro expanded in the home country and in Argentina mainly through the
planting of new vineyards. This strategy enables to company to have a ‘com-
plete control of the productive process and supply chain’ (Concha y Toro
2015) (cf. Exhibit 23.2).
Exhibit 23.2 Vertical Integration Backwards Through Greenfield

Investments: The Example of Concha y Toro (2002–2018) (Chile)
Concha y Toro is the leader of wine production and exports in Chile. It is also one
of the top three Argentinean wine exporters (Trivento subsidiary). Vineyard sur-
faces increased at an average growth superior to 9% year-on-year in the last 10
years.
‘Our business model is to make Concha y Toro, the most vertically integrated
company of the wine industry’ (in Concha y Toro, Annual Report, 2015). The
company sources grapes and bulk wine from third parties mainly for entry-level
wines—such as Casillero del Diablo—(50% of the wines in the popular, varietal,
and premium segments) and other low-priced wines (almost 76% of the vol-
umes) (source: Concha y Toro, Annual Reports). Wine brands in the higher-end
segments are exclusively from grapes sourced from the vineyards of the
company.
Grapes represent approximately 30% of Concha y Toro’s direct costs and the
company buys 65% of its grapes or bulk wine from third parties. Therefore, the
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company’s gross margin is highly sensitive to fluctuations in the prices of the

grapes during the harvesting period and of the bulk wine for the rest of the year.
The expansion of the company included a partnership with Baron Philippe de
Rothschild (France) to produce Almaviva (US $80/bottle).
In 2011, Concha y Toro acquired the vineyards and winemaking facilities of the
main organic wine producer in the USA (Fetzer Vineyards and Bonterra). This
acquisition was the first major investment of the company outside Latin America.
In 2015, the company established an R&D center dedicated to viticulture and
winemaking in Chile.
Chilean wine production is highly dependent on Cabernet Sauvignon. The

diversification of vineyard plantings allows Concha y Toro to diversify the
tasting profiles for this varietal but also to find the most suitable locations for
new grape varieties (e.g. Gewürztraminer, Riesling, and Syrah) (Tables 23.1
and 23.2).
Table 23.1 Concha y Toro: expansion of vineyard surfaces 2002–2018 (ha)

New
plantings Vineyard surfaces (ha)
Strategy for
Change vertical
Locations 2002–2005 2005 2010 2018 2005–2018 integration
Chile 1189 4545 8445 9717 10 valleys, 55 113% Greenfield
vineyards
Argentina 349 433 1068 1140 3 valleys, 9 164% Greenfield
vineyards
California – 0 – 468 2 valleys, 14 Acquisition
vineyards
Source: Own elaboration based on annual reports
Table 23.2 Concha y Toro: expansion of vineyard surfaces in Chilean valleys 2005–2015
(ha)
Chilean valleys (ha) 2005 2010 2015 Change 2005–2015
Limarí 313 896 965 186.3%
Casablanca 339 415 424 22.4%
Leyda – 130 130 –
Aconcagua – – 100 –
Maipo 620 974 853 57.1%
Cachapoal 611 1306 1463 113.7%
Colchagua 636 1757 2163 176.3%
Curicó 442 666 683 50.7%
Maule 1584 2300 2413 45.2%
Source: Own elaboration based on annual reports
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The two examples above illustrate the main paths undertaken by leading
wine firms around the world to expand vertical integration backwards.
In contrast with the Chilean example, the major wine firms in the EU,
particularly in France (see Montaigne et al. 2012, about the restrictions of the
mechanism for the distribution to structure the vine planting rights scheme in
France), tend to expand dominantly through mergers and acquisitions in
order to expand the vineyard basis.
23.3 T
he Planting Rights Scheme: A Look
into the European Constraints to Vertical
Integration Backwards
As we discussed in the previous part of the chapter, at the international level,
the access to raw materials—wine grapes—is a key point for firms’ success
across the wine chain. However, over time firms need to redefine their bound-
aries through a proactive and intentional approach as a reaction to changes in
the competition environment.
In the EU, vine planting rights were a means adopted by legislation to help
industry to better manage the production potential (i.e. grape growing) and
regulate the supply of wines. The wine common market organization (CMO)
framework, established in 1970, introduced this policy measure in 1976 to
better regulate the wine production by limitation of the potential, after two
‘wine wars’ between Italy and France. This legislation applies to the firms
operating vineyards within the EU. However, even if the planting rights
scheme concerns all vine-producing countries, the transposition of European
rules into national legislations diverges across countries (see Montaigne et al.
2012).
The case of the transposition of European rules into French vineyards illus-
trates how the system blocked the distribution of sizeable areas of vine plant-
ing rights among vine producers. The transposition of the European rules of
vine planting rights to France is unique. For example, in the last 30 years, in
the Languedoc-Roussillon—the largest French vineyard region—there was
not any greenfield investment to establish a single vineyard above 3 hectares.
In contrast, many studies document many greenfield investments to establish
large vineyards above 50 hectares in other European countries (e.g. in the
Douro valley or Hungary) (see Delord et al. 2015). Those cases illustrate the
influence of the French legislation, creating barriers preventing firms to
increase vertical integration backwards. Firms planning to extend the vineyard
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surfaces could only purchase each year a tiny amount of vine planting rights
in the open (‘spot’) market. As an alternative, firms could vertically integrate
vine production—at a significant cost—through mergers and acquisitions. In
the most prestigious protected designated areas such as Champagne, Bordeaux,
and Burgundy, land prices and the scarcity of the grape supply were two of the
main barriers for investors.
23.3.1 T
he Vine Planting Scheme in France: An Atypical
Case of Redistribution
Most often, vineyard extension in France requires grape growers use the most
traditional approach, that is, the purchase of plots already planted (brownfield
investment). The decision to acquire vineyards depends not only on vine
planting rights but it also took into account the location (closeness to grape
farms), the value of land in the land market, the value of the products into
consumer markets, and the patrimonial approach characterizing the behavior
of grape growers. The availability of vine plantings influenced the price but
the French national reserve set up a common price for the planting rights sold
through the reserve. In protected designation areas, the scarcity of land is the
main factor explaining the price of vine planting rights.
In France, there was an important wine crisis at the early start of the twen-
tieth century. As a consequence, France introduced a vine planting rights
scheme in 1931. Six decades later, French legislation adapted to the most
significant wine reform at the European level in 1999 by introducing the
‘reserve’ mechanism for vine planting rights. The national reserve for the
management and distribution of vine planting rights became a tool of the
public policy under the supervision of the Ministry of Agriculture.
By law, all vine plantings should be justified through proprietorship.
Changes in the wine policy created two types of planting rights in France:
those originated from the uprooting vine plots and those distributed through
the national reserve. Growers who uprooted vine plots or the entire vine sur-
faces on a wine estate could sell the planting rights on the open market during
eight years.
In this case, the national reserve was a tool to administer vine planting
rights originated through the uprooting of vine planting rights not replanted
within the eight-year lifespan. The reserve also hosted new planting rights,
granted by the EU to each individual country within the framework estab-
lished through the CMO for wine reform in 1999.
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The national reserve provided free planting rights for young farmers. The
remaining grape growers could acquire planting rights from the national
reserve at a cost. In the spot market, transactions for vine planting rights
could proceed directly, that is, between two grape growers or through the
intermediation of a broker.
The price for the sale of vine planting rights derived from the national
reserve was established at approximately €1750/ha in the first four campaigns
(2002/2003–2005/2006). Prices decreased to €1500/ha in the following four
campaigns and reached €1000/ha in the campaign of 2011/2012. As each
grape grower could sell his planting rights to the national reserve, the main
consequence was those prices became also the key reference for the prices of
vine planting rights in the free market. The main outcome of this process was
the complete disconnection between the amount paid for planting rights and
market prices for land. Champagne was the most striking example, as the
prices of vine planting rights were completely insignificant when compared to
the price of land.
Therefore, whenever French grape grower plans to increase the vineyard sur-
faces of his own estate, he needed to acquire a planting right to plant vines in
the free plot. In addition, the proprietorship of vine planting rights was not the
only necessary condition to be allowed to plant a vine. The scheme also required
an ‘authorization’ to plant vines. In practice, with the exception of wines with-
out geographic indications (i.e. the former ‘table wines’) excluded from the
planting rights scheme from 1999 to 2015, the two other European categories
of wines (PDO and Protected Geographic Indications (PGI)) were able to
control their production potential through a board—Organisme de défense et de
gestion (ODG), that is, syndicats de cru—governing each PDO and each
PGI. The board (ODG) established an annual quota of authorization for each
PDO or PGI in order to prevent excessive growth of the production potential
not in line with the specific PDO or PGI market demand. The ODG (board)
distributed the quota in proportion to the individual demands of grape grow-
ers. In addition, there was a maximal cap of three (five for collective programs)
hectares/farmer/year for each area producing wines under PGI and one hect-
are/farmer/year for wines under PDO. This maximum annual expansion was
the source of major controversies among the wineries wishing to establish ex
nihilo vine projects. Major wineries recognized the planting rights scheme in
France as a barrier to vertically integrate the vineyard. The greatest controversy
concerned the American Mondavi company undertaking to create a 50-hect-
are vineyard in Aniane, a typical tiny village in Languedoc (Torres 2005).
What is the economic rationality behind the French scheme? The planting
rights scheme involves three different levels among decision-makers. The first
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level concerned is the national level of decision-makers. Decision-making is

established in close relation with rules set up at the European level. Those
rules consider the balance of the global wine market and no differentiation
among vineyards. The main purpose of the regulation is to control the vine
surfaces in each European country and limit their expansion. Therefore, the
organization controls the European wine production potential and shares vine
planting rights between all European countries, smoothing the competition
between countries. The traditional objective of this regulation is to limit the
overproduction (i.e. ‘the wine lake’) for a perennial plant and to reduce the
King effect which leads to a collapse in prices and income.
The second level of decision-making concerns regions. Here, the main fac-
tor concerns the definition of the rules for the production of PDO and PGI
wines. Those rules impact French vine plantings and other European coun-
tries. The purpose of those regulations is to differentiate the wines according
to quality, originality, terroir and tradition. At the regional level, producers
face reduced yields in vineyards and an increase in the costs of production due
to supply constraints. This explains why the ODG is managing the scarcity
preventing a potential oversupply crisis. This level-playing field creates a real
motivation for investors and large firms to vertically integrate backwards.
The third level of decision-making concerns individuals. Following the
expansion of the European vineyards, within the framework introduced in the
European wine legislation (CMO) by 1999, appeared the global anticipated
oversupply in 2014 with 50 million hectoliters above the average world pro-
duction. All the vine-producing countries were impacted by the wine lake. A
large part of wine estates and firms got into financial distress or went bank-
ruptcy. The wine lake also impacted New World wine producers, particularly
Australia. EU implemented in 2007, a large subsidized uprooting program for
175,000 hectares. The new subsidized program impacted all the vine regions
in Europe. The more significant share of the vines removed were located in
wines without PDO and PGI regions. Those regions were the most impacted
by the crisis. PDO and PGI regions were also impacted, but the grubbing-up
scheme concerned mainly old vines or old grape growers.
The purpose of vertical integration backwards was to increase benefits in
the long run through the construction of a set of rules, differentiation, increas-
ing profitability, and reaching affordable prices for PDO and PGI. In the
absence of vine planting rights, firms would have to pay only the cost of
establishing of a new vineyard, independently of market prices for land
(€30,000 on average in Bordeaux compared €1.2 million/ha in Champagne).
The main political argument promoted by the tenants of the liberalization of
vine planting rights of Europe relied on the possibility granted to large firms
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reach economies of scale. This argument was clearly refuted in the literature
(Delord et al. 2015). The planting rights scheme privileges already established
vineyard owners and their successors. The scheme requires an authorization
for extending the surfaces through a ‘democratic’ approach limiting the vine
surfaces distributed to each individual.
The decision-making process for the allocation of vine planting rights was
a major constraint for the establishment of ex nihilo vine projects among
French vineyards. Major French wine firms (Castel, Grands Chais de France,
Boisset, Baron Philippe de Rothschild, Advini, etc.) perceived the planting
rights scheme as a barrier for expansion and for the integration of the upstream
of the wine chain. A close look into the strategies of the leading French wine
firms shows the expansion and progressive integration backwards of vineyards
was achieved essentially through mergers and acquisitions.
23.4 Conclusion
This chapter discusses the motivations and strategies followed by the leading
international wine firms to vertically integrate the vineyards. We compare the
approaches used by the wineries in the New World—where there is no legal
system or institutional system to manage the production potential—and the
vine planting rights in Europe, particularly in France. These two contrasting
situations explain how institutional rules may shape the strategies of firms to
integrate the vineyards. The above reflection suggests how important it would
be to integrate the different approaches and constraints into the public debate
to raise the competitiveness of European vineyards.
References
Codron, J.M., E. Montaigne, and S. Rousset. 2013. Quality management and con-
tractual incompleteness: Grape procurement for high-end wines in Argentina.
Journal on Chain and Network Science 13 (1): 11–35.
Coelho, A. 2013. Concentration des grandes firmes vitivinicoles. Le Progrès Agricole
et Viticole 12: 11–18.
Coelho, A., and J.-L. Rastoin. 2004. Stratégie des grands groupes internationaux:
vers l’émergence d’un oligopole mondial du vin? In Bacchus 2005: enjeux, stratégies
et pratiques dans la filière vitivinicole, ed. F. D’Hauteville, J.-P. Couderc, H. Hannin,
and E. Montaigne, 79–99. Paris: Dunod.
Concha y Toro. 2015. Annual reports, several years.
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Delord, B., E. Montaigne, and A. Coelho. 2015. Vine planting rights, farm size, and
economic performance: Do economies of scale matter in the French wine sector?
Wine Economics and Policy 4 (1): 22–34.
DiMaggio, P.J., and W.W. Powell. 1983. The Iron cage revisited: Institutional iso-
morphism and collective rationality in organizational fields. American Sociological
Review 48 (2): 147–160.
Franken, J.R.V. 2012. Quality considerations for coordination of the California wine-
grape supply chain, American Association of Wine Economists. AAWE Working
Paper, No 99, February.
Geraci, V.W. 2004. Salud! The rise of Santa Barbara’s wine industry. Reno: University
of Nevada Press.
Gereffi, G. 1999. A commodity chains framework for analyzing global industries.
Durham: Duke University.
Goodhue, R.E., D.M. Hejen, H. Lee, and D. Sumner. 2002. Contract use in wine
grape industry. California Agriculture 56 (3): 97–102.
Longbottom, M., C. Simos, M. Krstic, and D. Johnson. 2013. Grape quality assess-
ments: A survey of current practice. Wine & Viticulture Journal 28: 33–37.
Montaigne, E., and D. Sidlovits. 2003. Long term contracts and quality in the wine
supply chain: Case of the Appellation “Vins des Sables du Golfe du Lion”. In
Budapest, ISNIE, 7th Annual Conference of the International Society for New
Institutional Economics, September 11–13, 20p.
Montaigne, E., D. Sidlovits, and G.G. Szabó. 2005. Examination of contracting rela-
tionships in the Hungarian Wine industry. In Budapest, Hungary: 2nd International
Conference on Economics and Management of Networks, September 15–17, Corvinus
University of Budapest, 27p.
Montaigne, E., S. Rousset, and J.-B. Traversac. 2007. Quelles perspectives pour les
contrats en raisin entre production et négoce? in Bacchus 2008: enjeux, stratégies et
pratiques dans la filière vitivinicole. Paris: Dunod, Chap. 3.3.
Montaigne, E., A. Coelho, B. Delord, and L. Khefifi. 2012. Etude sur les impacts
socio-économiques et territoriaux de la liberalization des droits de plantations viticoles,
Rapport d’étude. Presented at the international board of the Association of
European Vine and Wine Regions (AREV), Brussels.
Nelson, R.R., and S.G. Winter. 1982. An evolutionary theory of economic change.
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New York: Free Press.
mmorag@uchile.cl
Part V
Efficiency of the Business Models in
the Different Wine Industries
Coord. by Jean-Marie Cardebat
mmorag@uchile.cl
24
Introduction: Does a National Model Exist
Which Favors Trade Performance?
Jean-Marie Cardebat
The previous parts (Parts I and III) reveal the multiplicity of organization
models existing in the wine sector. Choosing the degree of vertical integration
therefore appears as a crucial factor for these organization models (Part IV). At
present we need to appraise the efficiency of these models. The key question to
be asked revolves around the existence of a model which will dominate the
others in terms of efficiency and economic performance, a model toward
which all wine companies should eventually converge. This question is partic-
ularly relevant in Europe where the global model is heavily based upon the
collective management of the company’s reputation through the Protected
Designation of Origin (PDO), small-scale properties and upstream rather than
downstream integration. This model has been, in part, challenged by New
World competition which relies on strong brands free of PDO constraints,
large estates which are able to exploit economies of scale and tight control of
sales via downstream rather than upstream integration. We therefore introduce
the hypothesis that a difference exists here, on average, between the Old and
the New World concerning the elements just specified above. The New World’s
commercial success since the 2000s has led to the Europeans questioning their
organization model. However, is the Manichean opposition occasionally made
between the two models founded? Must the Old World move toward a brand
model to preserve its world-leader status in the wine sector?
J.-M. Cardebat (*)


https://doi.org/10.1007/978-3-319-98633-3_24
mmorag@uchile.cl
456 J.-M. Cardebat
Answering these questions is not easy as the concept of economic perfor-

mance is multifaceted. It differs especially according to the focus of analysis:
are we speaking about companies, sectors, a region or a country? At the com-
pany level, the traditional ratios of financial profitability remain predominant
for measuring performance, but they are increasingly challenged in favor of
nonmonetary value creation linked to the mind-set of corporate social respon-
sibility. For example, we can oppose a company’s environmental performance
with its financial performance. At the sectorial level, the same questions can
be asked regarding performance indicators: from simply aggregating the
financial performances of companies within this sector to considering nonfi-
nancial factors such as its territorial impact (local employment, landscape
function, tourist impact, etc.). To measure the economic performance of a
sector we will also take account of its contribution to the country’s trade posi-
tion. On a national scale, the economic performance of a sector will, essen-
tially, be seen from this trade-balance angle. A high-performing sector is one
which runs a positive trade balance, involving a net currency surplus entering
the country.
There therefore exists a wide panel of approaches to performance ranging
from the microeconomic, at the company level, to the macroeconomic, on a
sectorial and national scale. Given that notions of performance and efficiency
are difficult to grasp, our study cannot claim to be exhaustive, yet we will
strive to address these two aspects in this part. The present chapter focuses on
international trade. It addresses the question of the trade performance of
wine-producing countries according to two of their strongest characteristics:
Old or New World and a system directed toward PDOs or one toward brands
with a simple indication of origin. The following chapter will also consider
the PDO versus brand debate, but from an angle which is clearly more micro-
economic. It will discuss the best way for wine producers to manage reputa-
tion and therefore their future sales, either individually through a brand or
collectively through a PDO. This approach will go beyond the Manichean
and partisan framework which frequently encroaches upon the public debate
of such issues. Finally, the last two chapters of this part will present diametri-
cally opposed national case studies of economic success in the wine sector.
Indeed, Chile and Switzerland have both enjoyed great success but by follow-
ing completely different trajectories. These chapters perfectly illustrate the
cautious approach one must take when addressing questions of efficiency, per-
formance and economic models. The major lesson to be learnt from this part
is that there is no miracle recipe for success in this sector at a national level but
that different strategies are possible according to the micro- and macroeco-
nomic characteristics governing the country.
mmorag@uchile.cl
Introduction: Does a National Model Exist Which Favors Trade… 457
25,000
253%
35%
20,000
34%
15,000
660%
10,000
589%
532%
5,000 65% 148%
12% 3065%
739%
0
Italy France Spain Germany Argentina USA Chile Australia South New China*
Africa Zeland
1995 2017
Fig. 24.1 Change in exports in volume between 1995 and 2017. (Source: OIV [Wine
International Organization] statistics. Note: the percentages reported correspond to
growth rates between 1995 and 2017. (*) For China, the data are from 1995 to 2014)
Table 24.1 Average export price in 2017 (in € per liter)

Country Average export price €/l
France 5.84
New Zealand 4.22
USA 3.88
Argentina 3.24
Italy 2.74
Portugal 2.69
Germany 2.52
Australia 2.16
Chile 1.78
South Africa 1.30
Spain 1.27
Source: OIV statistics
A simple analysis of major wine-producing countries’ export figures reveals

a significant rise in the volume of exports between 1995 and 2017, for both
Old and New World countries. Figure 24.1 highlights two major pieces of
information. The first is that the Old World still leads wine exchanges. This is
all the more true when we consider the value of exports where France remains
the leader with nearly €9 billion of exports in 2017. In Old World countries,
only Spain has had difficulties to increase the average price of its exports
(Table 24.1) and it is ranked last in this classification of major exporters. This
clearly shows that there is no opposition between the New and the Old World
mmorag@uchile.cl
458 J.-M. Cardebat
as regards value creation, according to which the New World exports high
volumes of low-value wine while the Old World exports high-value wines.
The second piece of information from Fig. 24.1 is that the New World is
catching up given the strong increase of its countries between 1995 and 2017.
The growth of exports in volume from Chile or Australia is spectacular. The
export growth rate is even more impressive from countries which were only
minor exporters in 1995. This is especially the case for New Zealand which
has, in the space of two decades, established itself as a significant exporter on
the same level as Argentina or the USA. Moreover, New Zealand exports
high-value wines. The average price of its exports places it in second position
behind France’s (see Table 24.1). The cases of Chile (New World leader in
volume) and New Zealand (leader in average price) are clearly the most sig-
nificant to indicate how the New World is catching up with the Old.
A flat analysis of the wine-producing countries’ export statistics therefore
provides a contrasted outcome and does not allow us to identify one model as
more efficient than another. Indeed, a weaker progression in volume was in
part compensated by increased added value (i.e. average price) of the wines
exported.
Fig. 24.2 Exportation rate in 2014 in function of origin indicators. (Source: OIV statis-
tics. Note: on the x-axis we find the number of PDOs (for the European countries) or
that of simple origin indicators (DO for New World countries). The triangles indicate
European countries (except Georgia) and the circles represent New World countries
(including Georgia))
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To go deeper into the analysis of trade performance, Fig. 24.2 presents the
exportation rate of the major producers (a country’s exports in volume divided
by its production volume). This exportation rate is cross-referenced with the
number of origin indicators per country recorded by the OIV. These are the
PDOs for the European countries and simple Denominations of Origin (DO)
for the New World. The PDO system is historically linked to the European
agricultural regulation (Meloni and Swinnen 2014). Most of the other coun-
tries and notably those of the New World use a simple origin indicator which
is nonrestrictive from the technical point of view. A linear trend can be added
for each of the two groups of countries (European and New World) which
shows the global link between the origin indicators and the exportation rate.
Figure 24.2 provides different information to the previous graph. Indeed,
this time, the New World countries dominate the Old World. The leading
country is Chile which exports 80% of its production. Next come Australia
and New Zealand with an exportation rate close to 60%. The European coun-
tries, with the exception of Spain, lag behind on this measure with the major-
ity of their production being sold on their national market, even if the latter
has continued to shrink since the 1960s. Regarding the linear trends expressed
by dotted lines on Fig. 24.2, the other lesson concerns the negative relation
between the origin indicators and the exportation rate, although the low
number of points does not allow us to draw a statistically significant conclu-
sion. The vertical and horizontal lines appearing in Fig. 24.2 represent, respec-
tively, the averages of the number of DOs (151) and of the exportation rate
(34%). These lines allow us to isolate four quadrants. Among the major wine-
producing countries, those having the lowest number of DOs (lower than the
average on the left side) have the highest exportation rate (higher than the
average at the top). With the exception of Italy, all the countries are in fact
located either in the northwest or in the southeast of these quadrants. However,
the Old World and New World countries fall into each of these two quadrants
and are therefore not polarized. Once again we need to note, however, that
this type of analysis does in no way lead us to a conclusion concerning the
causality between these variables.
Figure 24.3 provides supplementary information. It no longer simply con-
siders the exportation rate but the trade balance relative to national produc-
tion, still cross-referenced with the number of PDOs and DOs. It also shows
changes in this ratio between 1995 and 2014. Between these two dates we can
observe a significant progression of the New World countries with the excep-
tion of the USA. New Zealand’s performance appears the most impressive.
On the contrary, Germany is the country whose trade performance has wors-
ened the most followed by the USA. As above, it is not possible to isolate a
mmorag@uchile.cl
460 J.-M. Cardebat
100%
Chile 2014
Australia 2014 Spain 2014

New Zealand 2014
50%
Chile 1995
Italy 2014
Georgia 2014
South Africa 2014
Australia 1995 Italy 1995
Spain 1995 Argentina 2014
Portugal 1995 France 2014
Argentina 1995 France 1995
Portugal 2014 South Africa 1995
0%
Georgia 1995
0 50 100 150 200 250 300 350 400 450
USA 1995
New Zealand 1995 USA 2014
-50%
Germany 1995
-100%
Germany 2014
-150%
Fig. 24.3 Trade balance relative to production volume (y-axis) in function of the num-
ber of PDOs and DOs (x-axis) for a selection of countries between 1995 and 2014.
(Source: OIV statistics. Note: the ratio is calculated on the basis of the trade balance
divided by the production of each country, with all the variables expressed in volume.
On the x-axis we find the number of PDOs (for the European countries) or that of
simple origin indicators (DO for New World countries). The triangles indicate European
countries (except Georgia) and the circles represent New World countries (including
Georgia). Linear trends are given for the year 2014)
model which seems more efficient than another. Old and New World coun-
tries have had very diverse trajectories within each group of countries.
Similarly, there is no clear relation between the number of origin indicators
and trade performance.
This simple statistical analysis of international trade in wine points there-
fore appears to conclude that there is no link between business models—
approximated by belonging to the Old or New World or by the number of
origin indicators—and trade performance, approximated by very simple indi-
cators of exportation and trade balance. We must remain cautious given the
limits of this study which remains highly descriptive. Nevertheless, this work
probably invalidates the Manichean idea, according to which the New World
is outperforming the Old in terms of export performance. In the same way, as
regards the average price of exported wines, it is difficult to support the idea
that the Old World remains the bastion of value creation compared to the
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New. This analysis of the statistics of international exchange sends us back a

complex and contrasting image. This image will be confirmed in the following
chapters.
Reference
Meloni, G., and J. Swinnen. 2014. The rise and fall of the world’s largest wine
exporter-and its institutional legacy. Journal of Wine Economics 9 (1): 3–33.
mmorag@uchile.cl
25
Individual and Collective Reputations
in the Wine Industry
Florine Livat
25.1 Introduction
At first glance, the wine world seems characterized by two different models of
reputation that reflect varying cost structures, wine technologies, and wine
styles. The so-called New World1 (Argentina, Australia, Chile, New Zealand,
South Africa, and the United States) is known to promote private brands and
non-blended wines with varietal labeling that are easy for buyers to recognize.
The Old World (European and Middle Eastern countries with a long-
established history of wine production, since at least Roman times) produces
wines characterized by a profusion and even proliferation of geographic indi-
cations (GIs) and appellations of origin (AOs). GIs and AOs have some com-
mon attributes. Wines with this kind of identity are owned and marketed
collectively by unions, associations, trade bodies, or other kinds of coalitions.
1
According to Banks and Overton (2010), the Old World–New World dichotomy, which structures
much of the thinking about the wine industry, is not relevant anymore. Indeed, this segmentation neither
represents the complexity of production and marketing in these broad regions, which are not homoge-
nous, nor takes into account the rapidly expanding wine production and consumption in China and
India, and even Brazil. These authors suggest the addition of a “Third World” category. Some other
authors recommend creating a new niche in the global wine markets, a “Historic World,” which is dedi-
cated to wine-producing countries using mostly indigenous grape varietals, such as Armenia, Georgia, or
Israel (Keushguerian and Ghaplanyan 2015).
F. Livat (*)
Kedge Business School, Bordeaux, France
e-mail: florine.livat@kedgebs.com

https://doi.org/10.1007/978-3-319-98633-3_25
mmorag@uchile.cl
464 F. Livat
On the contrary, branded wines aim to distinguish themselves among com-

peting products and have an individual owner. As such, these two seemingly
opposite reputation models appear to coexist in the wine industry, but such a
categorization might be simplistic. Reputation is not supported by a unique
model in the Old World or the New World, and this is what we will illustrate
in this chapter.
Reputation, which is defined by economists as a perception of quality,2
emerges in situations of incomplete information. In wine markets, where a
typical experience is usually shared, reputation becomes a key asset, as sum-
marized by Fombrun and Shanley (1990, p. 233): “by signaling consumers
about product quality, favorable reputations may enable firms to charge pre-
mium prices, attract better applicants, enhance their access to capital markets,
and attract investors.” Castriota and Delmastro (2012) identify three different
sources of reputation for wine:
–– International, national, regional, or local institutional reputation results in

wine classifications that guarantee a minimum level of quality. The
European Union (EU) wine laws imply that wines produced within the EU
are divided into two quality categories, each with different rules for wine-
making practices and labeling: Table Wines (TW) and Quality Wines
Produced in Specified Regions (QWPSR). In the United States, the Alcohol
and Tobacco Tax and Trade Bureau provides the American Viticultural
Area (AVA) system; every AVA is a US winegrape-growing region with
well-defined boundaries and distinguishable by geographic features. There
is no regional- or quality-based hierarchy, and some larger AVAs contain
smaller ones within their boundaries (known as sub-AVAs). Both systems
support institutional reputations.
–– Coalitions of producers define production rules. Castriota and Delmastro
(2012) talk about collective reputation, which can be associated with AOs
and/or with groups of AOs when several appellations coexist within a sin-
gle regional vineyard. These coalitions are funded through fees—compul-
sory or not—provided by producers. The Wines of Chile Association,
which represents the viticultural producers of Chile, is in charge of pro-
moting Chilean wine in national and international environments. As such
its mission is to develop a collective reputation. In Italy, the Consorzio Del
Vino Brunello Di Montalcino is an association of producers that aims to
2
“The term ‘reputation’ expresses what is generally said or believed about the abilities and/or qualities of
somebody or something” (Belletti 2000, p. 239).
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Individual and Collective Reputations in the Wine Industry 465
enhance the image of wines produced in the Tuscany wine region benefit-
ing from the Brunello di Montalcino denominazione di origine controllata
e garantita (DOCG), a local AO.
–– Single wineries provide individual reputations. Quite often, individual
reputation is conveyed and even incarnated by the brand name. Yellow Tail
is one of the biggest wine brands; Shalauri Cellars is another one, produced
in the Kakheti region of Eastern Georgia. A single winery can provide sev-
eral individual brands, each with a specific blend or varietal.
Examples of the three sources of reputation in the wine sector can be drawn
from Old and New World countries, suggesting a strong interpenetration of
both reputational models.
In this chapter, we focus mainly on institutional and collective reputation,
given that the role of brands is extensively analyzed in the marketing litera-
ture: how it emerges and which effects are produced. Considering reputation
effects, origin and brands can be conciliated. In Sect. 25.2, we present briefly
some historical elements to understand why appellations and brands and vari-
etals prevail in, respectively, the Old and New Worlds. In Sect. 25.3, we pres-
ent how appellations act in wine markets. In Sect. 25.4 we discuss how origin
can be seen as a brand, and in Sect. 25.5 we present some failures of collective
reputation. We conclude our thoughts in Sect. 25.6.
25.2 Brief History of the Wine Industry

Two distinct models of the wine industry have evolved since the eighteenth
century: the Old World, which is highly fragmented, grounded in certifica-
tion of origin and the official classification of wines as a vehicle for collective
reputation, and the New World, which is more concentrated and based on
individual brands as a vector for individual reputation.
25.2.1 Old World and Appellation of Origin: A Review
France created the first European label of origin systems—the appellation

d’origine controlee (AOC)—which was conceived of as a protected designa-
tion of origin (PDO), that is, a geographic indication certified by the govern-
ment: “Products covered by AOC labels are controlled by the state to ensure
both their territorial origin and their conformity to precise rules for produc-
tion and processing that guarantee their ‘typicity,’ or distinctive character”
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466 F. Livat
(Barham 2003, p. 128). This designation occurred in a specific industrial and

institutional context. Indeed, the economic features of winegrowing as well as
the intrinsic uncertainty of winemaking come from the fact that traditionally
in Europe, winegrowing and winemaking are integrated in a single, small
family business, whereas marketing and trade are carried out by merchants in
charge of domestic and international distribution (Simpson 2011a). This spe-
cific organization of the French wine industry resulted from the market insta-
bility produced by the mid-eighteenth-century phylloxera crisis and other
vine diseases (powdery mildew), which have weakened the position of most
winemakers and strengthened the position of the merchants in the commod-
ity chain. It has also provided incentives for the emergence of a regulatory
framework allowing for the creation of appellations of origin, thanks to the
lobbying of winemakers in a context of wine fraud and adulteration.
In the late 1780s, Young (1794, pp. 24–25, quoted in Simpson 2011b,
p. 44) noted that in France, the cultivation of vine depended “almost entirely
on manual labour … demanding no other capital than the possession of the
land and a pair of arms; no carts, no ploughs, no cattle.” Low entry costs, little
capital expenditure apart from planting the vineyard, and the ability to use
small plots of land to grow vines competitively compared with other crops
were attractive, but there were some negative aspects, such as few economies
of scale, huge weather effects, and risks of pests and vine diseases. As summa-
rized by Simpson (2011b, p. 44), “grapes had to be processed quickly because
they were easily damaged or diseased, and therefore family growers also made
their own wine.” Using wage labor or some form of rental arrangement was
inappropriate due to a classical moral hazard problem: workers or tenants
treat the vines with less care than the owners, given that wages were not suf-
ficiently high to ensure good-quality work, and the vines could be perma-
nently injured if different viticultural operations were poorly carried out, even
for a single year. Some exceptions were found in Bordeaux, where fine-wine
producers developed a contract that provided good working conditions and
wages to ensure that workers returned each year, developing know-how and
increasing their level of care and time devoted to vines to improve the harvest
quality (Simpson 2011a).
By the end of the eighteenth century, after the 1789 French Revolution,
winemakers and wine merchants had to deal with counterfeiting. Words such
as Bordeaux or Champagne were generic names used by foreign traders to sell
wine from a different origin. If in the Bordeaux region certain châteaux and
individual brands were successful, elsewhere traders exerted increasing control
over the producers. This occurred in Champagne, where negociants domi-
nated the market because they manufactured the products and mixed them.
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Simpson (2011a) notes that blending provides numerous opportunities for

fraud and adulteration.3 In Bordeaux, some new comers among wine estate
owners also sold low-quality mixed wines, creating division among winegrow-
ers themselves. Even if unions and professional associations were created, the
conflicts remained, and local lobbies tried to influence every regulation
(Stanziani 2004). As summarized by Stanziani (2004, p. 158), “during all the
19th century judicial interpretations guaranteed the protection of individual
trade-marks and brands but they refused to take in consideration collective
marks and generic names.” Information for the consumer was unclear, the
average quality decreased, and generic names suffered from a loss of reputa-
tion. At that time, reputation already played a major role in markets. If fine
wines were sold under brand names, and commodity wines were sold to mer-
chants for blending, “consumers might not be able to tell exactly what had
been added to the wine they were drinking or where it had been produced,
but they could make a choice of which retailer to frequent, being influenced
no doubt by that person’s reputation for fairness, quality, price, or good com-
pany” (Simpson 2011a, p. 23). The instability of quality from one harvest to
the next made it impossible to create brands, and thus the retailer’s reputation
was crucial.
From the late 1850s to the mid-1870s, the phylloxera disease, transmitted
by an aphid, destroyed most of the French vineyard. The American vines were
aphid-resistant, so the task of reconstituting the French vineyards by means of
grafting traditional French vines onto American rootstock began by the end
of the nineteenth century. This redevelopment of winegrowing areas drove
merchants to misuse denominations of origin and even poison consumers
with fake products (Marie-Vivien 2010). The phylloxera crisis also forced
merchants to search for alternative supplies: in foreign countries or by adding
sugar to grapes. But “the subsequent recovery in domestic production was not
accompanied by a marked reduction in these supplies, and growers had to
stand by and watch prices, and their profits, fall steeply from the turn of the
twentieth century, leading to demands that the government intervene”
(Simpson 2005, p. 528). At the same time, the combination of falling trans-
port costs, urbanization—implying that consumers no longer knew the origin
of the wine—and rising real wages led to consumption per capita increasing
3
“Fraud involved selling wine under the label of a private brand such as Moët & Chandon, or collective
regional brands (Bordeaux or Champagne) when it had been produced elsewhere. Adulteration, by con-
trast, consisted of adding ingredients that were considered illegal or ‘unnatural’ to wine and the wine-
making process like resin, honey, herbs but also lead and lead compounds” (Simpson 2011a, p. 7). For a
series of examples, see Holmberg (2010).
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468 F. Livat
from 76 liters in 1850–1854 to 168 liters in 1900–1904 (Nourrisson 2013).

As a result, “as the distance between the producer and consumer increased, so
did the economic power of the merchants, who were able to purchase their
wines over an increasingly large area” (Simpson 2011b, p. 45).
At the beginning of the twentieth century, many producers were encourag-
ing a state intervention. Former professional representatives were excluded
and new commissions were organized with technicians and agronomists. Vine
diseases forced governments to invest in research and new winemaking tech-
nologies to improve wine quality (Simpson 2011b), even if scientific progress
made it easier for potential fraudsters. In several wine regions, winegrowers
pointed out that consumers required information and a guarantee of quality,
especially if they were willing to pay more to avoid drinking fraudulent and/
or adulterated wines. Despite the oppositions of merchants and conflicts in
establishing geographic boundaries, as winegrowers and rural workers became
more organized, their political influence increased (Simpson 2005) and sev-
eral laws were enacted in 1905, 1908, 1919, 1927, and 1935 to allow for the
creation of the French appellation system.4 According to Stanziani (2004,
p. 149), this system is required “when neither the market alone nor the indi-
vidual marks provide efficient information on the quality of goods.” For
Jacquet (2009), who studies the appellation system in Burgundy, the regula-
tion associated with the AOC labeling also aimed to avoid rural depopulation
and promote the republican order. Nowadays there are more than 350 AOCs
in France. Spain and Italy have followed this trend. In Spain, the denomi-
nación de origen (DO) appellation system was first developed in the Rioja
wine region in 1926. The denominación de origen calificada (DOC), or
denominació d’origen qualificada (DOQ) in Catalan, is a higher category of
Spanish wine, reserved for regions with the highest grape prices and stringent
quality controls. Rioja was the first Spanish region to be awarded DOC status
in 1991. The Italian government introduced the system in 1963 with cur-
rently three levels: DO (designation of origin, seldom used), DOC (controlled
designation of origin), and DOCG (controlled and guaranteed designation of
origin). To reinforce the effect of certification, wines are tasted by government-
licensed professionals before being bottled, and DOCG wine bottles are then
4
Simpson (2005) shows that if establishing regional appellations has helped growers in winning back
market power in the Bordeaux and Champagne vineyards, another response was shown in the Midi
region (Languedoc area): the creation of producer cooperatives, better equipped than merchants to clas-
sify wines and guarantee quality for consumers, has provided incentives to plant quality vines and allow
growers to capture the growing economies of scale in wine production and marketing. This creation
occurred because the sector was united (small and large growers and even merchants also affected by low
prices) and mass demonstration in 1907, previously unknown in France.
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sealed with a numbered governmental seal across the cap or cork, which
results in a paper strip if torn out during opening. For a presentation of the
EU wine classification, see Delmastro (2005, p. 2).
The economic and institutional features of the European wine industry,
generated at least partly by some natural constraints, have allowed for the
emergence of the appellation system as a support for collective reputation and
to provide information about the products. The New World history is
different.
25.2.2 New World: Brands and Varietals
Simpson (2011b) studied the exogenous changes that occurred in the wine
industry between 1870 and 1914 in California, Australia, and Argentina,
which evolved from a traditional viti-viniculture to a new organization of the
commodity chain. By the beginning of the twentieth century, this chain was
dominated by large industrial wineries producing wines that could be branded.
In the New World, grape production was a specialist activity whereas wine-
making and marketing were integrated into a single business.
In the 1850s, the New World wine industry was small scale. By 1900, in
Australia, California, and Argentina, grape growing was a specialist activity
and grapegrowers sold their grapes to winemakers, who also made a business
of wine. Indeed, in the New World, climatic conditions made the vines much
easier to grow than in the Old World. Harvest failures and diseases were far
less frequent, and grape quality was more stable and less heterogeneous from
one harvest to the next than in the Old World (Simpson 2011b). As depicted
by Simpson (2011b), New World grapegrowers met with few problems, need-
ing little capital to create new vineyards and other employment opportunities.
Wineries need winemaking facilities, and their investments are linked to
credit availability. When the market downturns, low prices do not allow for
capital-intensive wineries to purchase grapes from independent grapegrowers
who, as a consequence, crush the grapes themselves: the wine supply is not
diminished but at the same time quality declines as independent grapegrowers
are not necessarily skilled in winemaking. This increased separation between
grape growing and winemaking has led to unbalanced growth between grape
growing and winemaking.
In California by the end of the nineteenth century, facing falling prices and
fraud, winemakers and wine dealers established collective associations to agree
on prices and quantities. After several conflicts, the winemakers’ corporation
disappeared and horizontal consolidation as well as vertical integration
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470 F. Livat
allowed the wine dealers’ trust (the California Wine Association) to control
distribution and guarantee non-adulterated wines, while the political climate
was relatively permissive toward big businesses and trusts. This provided the
conditions to develop a mass market for wines and to invest in brand names.
This market is characterized by limited competition, given that investments in
production facilities and brands raise entry costs for potential newcomers.
Australia was the only New World country with a significant export trade,
with a fifth of its national production sold in the United Kingdom. Australia’s
high internal tariffs as well as the narrowness of the domestic market provided
an incentive to export even with high freight costs. But a long sea travel, some
extreme temperatures during it, and a necessary rest of several months on the
arrival of wines caused major quality problems for the wine trade. Simpson
(2011b, p. 55) summarizes that “trusted agents were required at both ends of
the chain: in Australia to check that only well-made wines were shipped; and
in London to determine the appropriate remedies to correct the wines on
their arrival.” Two major London houses dominated trade. They specialized in
Australian wines; invested in vineyards, winemaking facilities, European
methods for viticulture and vinification; and bought large quantities of grapes,
hired agents, and invested in modern techniques of advertising such as point-
of-purchase communication, all necessary conditions to create a standardized
product that could build consumer recognition. Even as the South Australian
government tried to compete, providing incentives to plant vines and creating
a vine depot in London, it failed to improve quality, and by 1911, three big
players dominated the exports from Australia to the United Kingdom and
were able to develop major brands.
A lot of European immigrants moved to Argentina before 1914. They were
accustomed to drinking wine, so wine producers competed on price rather
than on quality. By the end of the nineteenth century, there was a rail connec-
tion between Mendoza and Buenos Aires to take advantage of the good grow-
ing conditions for grapes, the winemakers who learned the needed skills to
produce wines properly in the hot climate and use the upgraded winemaking
equipment (Blanchy 2010). Grape growing is a specialist activity and grapes
were sold to wine producers, who could sell large quantities of ordinary wines
to agents, intermediaries, and/or retailers. Wine had been a basic beverage in
the Argentine diet, and leaders such as Peròn as well as the military dictator-
ship encouraged the supply of plentiful cheap wines.
But during the twentieth century, the growth of the wine industry was very
slow due to isolationist and protectionist policies enacted during the 1950s
and, as a result, the Argentinian wine industry lacked innovation (Townsend
and Tiefenbacher 2011). Facing a falling demand, the Argentinian wine s ector
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destabilized, and in the 1980s, 36% of all vineyards were eradicated (Pont and
Thomas 2011). The modernization of the wine industry started in the 1990s
with the replacement of traditional varietals such as Criolla with Malbec. The
focus of production has shifted from low-cost quantity to quality. The open-
ing of international markets; some technology transfers; foreign investments
by big, recognized players such as Mondavi, Lurton, and Chandon; the arrival
of maverick winemakers; as well as the peso devaluation in 2002 (Mount
2012; Pont and Thomas 2011), even if disadvantageous to most citizens,
made wines highly competitive in foreign markets and enabled the recogni-
tion of Malbec to become the emblematic variety of Argentina. If Malbec is
not a brand, it has a strong economic and emotional connection to Argentina,
where 70% of the world’s Malbec vineyards are now planted.5
25.2.3 Two Different Models
Because of natural, institutional, and economic conditions, wineries from the

New World mainly rely on “individual brand advertising” (BA) to promote
quality perception and develop an individual reputation; European wineries
use geographical indications (GIs) as a quality signal that allow them to share
the costs of promotion and to develop a common reputation (Yue et al. 2013,
p. 1). For Bureau and Valceschini (2003, p. 72), “the appellation of origin has
proved successful in allowing even small producer groups to benefit from a
well-established reputation.” On the contrary, as studied in the marketing
literature, a brand is a vector for individual reputation (see Lockshin et al.
2000).
In Sect. 25.3, we focus on geographic indications as a vehicle for collective
reputation.
25.3 G
eographic Indications and Collective
Reputation
A DO is used traditionally to suggest specific production practices or look for
natural endowments to positively affect wine taste. In the wine sector, empha-
sizing the place of origin as an indicator of quality is one way to differentiate
products (Stasi et al. 2011), especially for connoisseurs (Atkin and Johnson
2010).
5
See https://historyandwine.com/2014/07/02/cahors-france-the-french-malbec-story/; retrieved September
15, 2016.
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472 F. Livat
25.3.1 C
oalition of Economic Agents and the Collective
Reputation Effect
“Wine denominations are a perfect example of coalitions of economic

agents who share a common reputation” (Castriota and Delmastro 2011,
p. 9). An appellation can be seen as a coalition of producers who operate
within the same local area (Delmastro 2005). This coalition emerges because
the wine industry is characterized by information asymmetry and is highly
fragmented. Indeed, even if that sector has experienced consolidation
recently, a lot of small and family-owned vineyards remain, especially in
Europe (Roberto 2011). Sometimes, the owner is the sole full-time employee
and has to be simultaneously a vine grower, winemaker, purchasing officer,
salesperson, and so on (Edwards 1989). Moreover, these actors are often
constrained by small marketing and advertising budgets (Yuan et al. 2004)
or are not aware of contemporary marketing concepts to increase sales
(Spawton 1986). With the creation of AOCs, there is the underlying idea
that members of that coalition will benefit from the group image—as sug-
gested by the collective reputation theory proposed by Tirole (1996)—and
that belonging to a higher reputation group generates higher rents. However,
Gergaud et al. (2017) show in the case of Bordeaux wines that collective
reputation does not systematically offer net benefits to producers. Following
Tirole’s collective reputation theory (1996), Delmastro (2005) reminds us
that an appellation’s reputation depends on the rules that the coalition
members have adopted, on their past and present behavior, and on the
effectiveness of monitoring procedures. In the wine sector, the coalition
exists at two different levels: (1) at every AO and vineyard, thanks to a wine
commission if the vineyard is composed of several different appellations and
(2) in a wine commission that is in charge of promoting the vineyard as a
whole thanks to an umbrella, such as Bordeaux, Burgundy, or Toscana
(Tuscan wines). According to Fig. 25.1, the umbrella can be seen as a geo-
graphical indication. Some producers do not use such umbrellas to avoid
what they consider a declassification of their wines, especially when their
brand has achieved recognition on the market and enjoys a high individual
reputation.6 As such, in some cases, appellations and brands are conceived
as two models generating opposite effects.
6
A great growth, such as Château Mouton Rothschild in Bordeaux, indicates the Pauillac appellation in
the label, but it doesn’t make any explicit reference to Bordeaux as a collective umbrella.
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Indication of source - Geographical origin (direct or

indirect connotation)
- Geographical origin (direct or

Geographical indirect connotation)
indications
- Quality, characteristics, or
reputation
Appellations of - Geographical origin (only

origin direct connotation)
- Quality or characteristics (not
reputation)
Fig. 25.1 Denominations of origin. (Source: Addor and Grazioli 2002, p. 870)
25.3.2 A
Regulation to Increase Welfare and Efficiency
that Generate Profits
Wine is a typical experience product, and wine markets exhibit imperfect

information. In many countries, the public sector provides a certification of
origin to solve at least partly the information problem. When this origin is
certified by the government through an appellation of origin (AO), it becomes
a collective quality signal. For instance, the European Commission has intro-
duced legislation to guarantee that the product is produced in the mentioned
region and allows producers to market their product with a label stating a
PDO.
Stanziani (2004), who studies the emergence of the AO in France (called
AOC), considers them to be collective marks that appear when neither the
market alone nor the private individual quality signals provide efficient infor-
mation on the quality of goods. For Meloni and Swinnen (2013), given that
consumers have imperfect information and high ex ante monitoring costs
about wine quality, regulations such as the AO guarantee a quality level or
reduce information costs, which can improve welfare. Menapace and Moschini
(2011) have shown that this kind of credible certification scheme reduces the
cost of establishing reputation, compared to a situation in which only private
brands are established, and improves the reputation mechanism to ensure
quality.
For wine, in addition to origin, several restrictions, such as grape varietals,
maximum yields, practices in the vineyard and in the cellar, and alcohol level,
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474 F. Livat
also apply before obtaining an AOC designation. Since 2008, the system is
similar to that of taxes: winemakers must declare that their wine has been
produced in accordance with AOC requirements; to assure this, wines are
subject to random tests by an expert from a public agency. A given wine can
lose its appellation status for a given vintage if it doesn’t achieve the appella-
tion criteria.7
Geographic indications (GIs) are viewed as public goods (Schamel and
Anderson 2003) because they are used simultaneously by many firms that are
free to enter and exit the market, provided that all the requirements are met
(Moschini et al. 2008). Rangnekar (2004) views them as “club goods,” non-
rival, congestible, and excludable, and producers are free to decide the size of
the club. Binding a brand to a territory also generates a profit for some groups
of producers who have access to key assets or skills required to get the certifi-
cation or the AOC, such as land and a vineyard that can’t be delocalized or
will damage owners of land and vineyards in neighboring areas where less
reputed and less expensive wines are produced (Meloni and Swinnen 2013).
Castriota and Delmastro (2014) notice that using a well-known geographical
group brand enables small producers to get the benefits of a reputation profit.
But Winfree and McCluskey (2005) show that when a collective reputation
becomes a public good, there is an incentive to free ride, and the provision of
quality decreases as the size of the group increases.
25.3.3 Translating Terroir and Protecting Traditions
Economists usually view certifications of origin as collective quality signals

(Bramley et al. 2009). But AOC labeling can also be seen as a way to translate
terroir (Barham 2003), which refers to natural qualities of a geographic area
(soil, microclimate, slope, exposure, etc.) blended with human factors (know-
how or particular techniques) perceived as confined to that area and history
(such as public knowledge of a product originating in that area and recogni-
tion of the association between product and place). Behind AOCs and terroir
there is the idea that unique values are, at least partly, generated by local
places. Said differently, “to talk about terroir, it is necessary that the origin of
7
See, for instance, Bordeaux producer brand Les Hauts de Pontet-Canet, which is usually awarded with
a Pauillac appellation but didn’t get it for the 2012 vintage:
http://www.decanter.com/news/wine-news/587659/pontet-canet-second-wine-loses-aoc-status?utm_
source=Eloqua&utm_medium=email&utm_content=news+alert+link+24102014&utm_campaign=
Newsletter-24102014
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the production is clearly defined and that the peculiarities of the place are the
guarantee of a minimum of typicality” (Mora 2016, p. 43). Several agricul-
tural products can benefit from that certification of origin: wine, cheese, meat,
lavender, lentils, honey, ham, butter, spirits, and so on. The number of prod-
ucts benefiting from a protected designation of origin is increasing in Europe
(Profeta et al. 2010). Broude (2005) also views GIs as tools to protect cultural
heritage and preserve traditional methods of production or to establish and
preserve an identity. Addor and Grazioli (2002) also note that GIs are based
on collective traditions. Vogel (1995) notices that some people attach value to
regional traditions and are willing to pay a premium for it.
25.3.4 Origin Effect and Reputation
The promotion of a region of origin has a long history in the wine industry.
Schamel (2006) has shown a trend toward more regional differentiation. On
the academic side, origin has often been used as a vector for collective reputa-
tion used in empirical analysis. Indeed, several applications of a hedonic pric-
ing method for wine refer to appellation, which includes group reputation
(see, among others, Delmastro 2005; Landon and Smith 1997; Schamel and
Anderson 2003).
An extensive body of literature has addressed the issue-of-origin effect8 on
wine perception, evaluation, and purchase decisions. Yue et al. (2013) show
that region of origin, specifically geographical indicators, is an efficient tool to
signal good quality. They cite examples such as the Champagne region of
France in which well-known brands have invested in quality and advertising
over a lengthy period, thus building and maintaining a successful collective
reputation for the vineyard as a whole. In research by Batt and Dean (2000),
the origin of wine was found to be a key variable affecting consumer purchase
decisions. An argument for promotion of the region is also given by Hong
and Wyer (1989), who demonstrate that origin has a direct influence on eval-
uation of a product and in addition encourages stronger consideration of the
other attributes of the product. Consumers possess stereotyped beliefs about
the quality of products from a country of origin (Samiee 1994). This is known
as the “halo effect,” suggested by Maheswaran (1994). Huber and McCann
(1982) also demonstrate that origin can provide product quality signals when
consumers are not able to ascertain or are not familiar with the actual quality
8
For a review of the country-of-origin effect on perceived quality, see Verlegh and Steenkamp (1999). For
an analysis of the region-of-origin effect, see Van Ittersum et al. (2003).
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476 F. Livat
of the product. This is backed up by research from Elliot and Cameron (1994),
who find that country of origin may be used as a quality indicator when the
product cannot be assessed by objective criteria. As such, the link between
origin and reputation seems obvious: origin is a means to enhance reputation
and its vehicle.
According to Bruwer and House (2003), the image of a region of origin can
be used as a point of differentiation if it can take advantage of the positive
associations consumers have with that region. In some ways, origin acts like a
brand and considering the two models as opposite isn’t really accurate
anymore.
25.4 Origin and Branding

More and more, GI and individual brands are used simultaneously in the
wine world. As an example, as noted by Rasmussen and Lockshin (1999),
since the early 1990s, many Australian wine companies have indicated
regional brand names on their labels.
The brand notion is also meaningful in the French context with its use of
AOCs. According to Viot and Passebois-Ducros (2010), managerial practices
reveal three major types of brand strategy in the French wine industry:
–– The merchant brand: usually blended wines that are made, bottled, and
packaged by merchants and maintain a stable quality.
–– The producer brand: any wine estate that grows vines and has winemaking
facilities can create its own brand name, including using the word château
traditionally in the Bordeaux vineyard or the word domaine in Burgundy.
–– The retailer’s brand: wine that is available only in the outlets of a single
retailer.
At this point, origin and brand cannot be considered as two opposite mod-
els. They are often used jointly. Origin also has some dimensions of brands, as
shown in the next section.
25.4.1 Regionality and Territorial Brands
Origin can also affect the concept of a collective brand. Moulard et al. (2015)
show that origin affects consumers’ perceptions of a wine’s authenticity and
their willingness to pay for it, with a positive effect in the case of Old World
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wines. Consumers can be emotionally attached to a place, based on previous

visits to the wine region (Cardinale et al. 2016). Similar to brands, place can
generate attachment and loyalty. And similar to any collective brand, place
may act as a quality signal through spillovers that create reputation linkages
among various products or individuals (Choi et al. 1995). Cardinale et al.
(2016) identify that producing a good in a quality geographical area generates
a competitive advantage for those goods, and that name becomes a place-
based brand, because the area of origin is inimitable by competitors. And
because it is collective, it reduces the marketing costs for every single winery.
Regionality is a concept that reconciles origin and brand and has been
defined as the reputation a wine region has for producing wines with a par-
ticular style (Easingwood et al. 2011). When a wine region lacks regionality,
it must compete on price, what is not easy given the huge supply in the wine
world. Similar to brands (Lockshin et al. 2000), regionality is a differentiation
device that forms a kind of contract between the producer and the consumer
to obtain a consistent style of wine. Also similar to brands, regionality requires
uniqueness. Developing the notion of territorial brands, Charters and
Spielmann (2014) show that GIs have to be managed like brands. Territorial
brands must have a natural link to a place, resulting in something that cannot
be produced elsewhere, and it must be overarching, that is, encompassing all
individual corporate brands in the territory. Champagne is an emblematic
example of a territorial brand. It also illustrates the coexistence of brands and
appellations (Charters and Spielmann 2014).
The effects of origin can be the same as that created by individual brands.
At the same time, appellations have spread all over the world and can be used
jointly with brands.
25.4.2 Appellations in the New World
Easingwood et al. (2011) note that there is now a plethora of denominations

of origin in the New and Old Worlds. The US AVA that began in 1979 was
inspired by the French AOC model. Geographical indicators in the EU delin-
eate a certain region and in addition provide parameters on growing methods,
yields, winemaking, aging, and more, all supposedly leading to higher-quality
wines. By contrast, an AVA in the United States is defined solely as a geo-
graphical unit that possesses characteristics unique from the surrounding
areas. The rules are less restrictive than in Europe, stating that 85% of the
grapes must be grown in that AVA. There are no parameters for growing,
winemaking, and other factors such as that seen in the EU. Thus, there is no
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478 F. Livat
“objective” assurance of quality. Blanchy (2010, p. 30) notes that a system of

DOC was created in Argentina in 1999 but that in Mendoza few producers
use it, even if it begin to capture consumers’ attention (Defrancesco et al.
2012). Nevertheless, for export, most wineries do include non-protected geo-
graphical names on the label (Defrancesco et al. 2012) to generate an origin
effect in consumers’ minds. In Chile, the system is still in its infancy, but some
regulations of denominations of origin have been evolving since 1995. For
Schamel (2006), the trend toward regional differentiation is reinforced by the
better protection of geographical indications in many countries, raising the
rates of return on investments in regional promotion and suggesting that
“marketing” a region can be rewarded even in the New World. Schamel (2009)
also shows that in New Zealand high-quality brands rely heavily on overall
regional reputation, and in California some highly reputed brands lose their
strength and start to rely on regional reputation.
Using denominations of origin appears to be a trend in the wine industry,
even in the so-called New World. But in some cases, it fails to improve reputa-
tion through a collective mechanism, as discussed in Sect. 25.5, and individ-
ual strategies remain relevant, at least jointly with collective ones.
25.5 The Failures of Denominations of Origin

25.5.1 C
redibility of Certification and Proliferation
of Information
The AOC system provides a product certification that acts to transform unob-
servable experiences, but it also gives credence to elements such as origin as
observable search attributes (Auriol and Schilizzi 2003). Auriol and Schilizzi
(2003, p. 3) define certification “as a process whereby an unobservable quality
level of some product is made known to the consumer through some labeling
system, usually issued by a third independent party.” Considering that con-
sumer confidence associated with certification is a major concern, these authors
show that the sunk costs of certification enable the achievement of credibility
and that certification is better accomplished by an independent body, either a
private firm or a public agency. One specificity of GIs is that their recognition,
administration, and control are shared by public and private bodies, depend-
ing on the system of protection (Addor and Grazioli 2002). But frauds still
exist. Indeed, mixing wines from several appellations and mislabeling bottles
regarding their origin are some common types of fraud (Holmberg 2010).
Some winemakers also try to ridicule the appellation system: in the 1990s,
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Didier Dagueneau, a producer of outstanding Pouilly-Fumé AOC wines in

France, got an AOC for his worst production, made with bad-quality grapes
and branded “Quintessence of My Balls” (Doward 2005).
Meloni and Swinnen (2013) notice that government decision-making can
be influenced by political pressures related to regulation-induced prices,
which reduces overall welfare and efficiency, and that the AOC system is the
result of efficient lobbying from wine producer organizations that put pres-
sure on the French government. Teil (2010) note that since their creation
AOCs have been suspected of not conveying reliable information. Nevertheless,
their use is expanding in the world, and they coexist with many other strate-
gies to reveal quality. As a consequence, the wine market has become complex,
hosting hundreds of thousands of brands and other quality signals. The certi-
fication of origin can be associated with a brand (Lockshin et al. 2006), some-
times with a medal (Orth and Krška 2001), a back label (Mueller et al. 2010),
or some other typical quality signals in the wine sector. The consumer can also
use some other sources of information, such as grades and comments pub-
lished by experts (Dubois and Nauges 2010), public opinion9 (Ashenfelter
et al. 2007), specific press, or even movies (Cuellar et al. 2009). This prolifera-
tion and even redundancy of information, labels, and appellations can pro-
duce distortions including consumers’ lack of attention or trust and even
misunderstanding (Anania and Nisticò 2004; Marette 2005). Viot and
Passebois-Ducros (2010) show that there is confusion, in the consumer’s
mind, between the brand and the appellation of origin. Livat et al. (forthcom-
ing) show that consumers cannot decipher the quality attributes that the dif-
ferent DOs are meant to signal, which questions the optimal number of AOs.
In such a context, some producers, aware of the potential inefficiency of cer-
tification of origin to improve their reputation, question the role of coalitions
as well as their own membership in such groups.
25.5.2 Coalitions are Challenged
In January 2013, the Loire appellation Montlouis-sur-Loire, a grouping of 72

wineries, broke away from the official Loire wine commission, named InterLoire,
and decided to be responsible for its own marketing and promotion, withdraw-
ing its funding contribution to the wine commission of only €70,000 for the
whole group. They believe and hope to be more efficient individually and to
improve their reputation. Another member, the Bourgueil appellation, decided
Such as in 2003 with the US consumers’ boycott of French wines.

9
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480 F. Livat
to go it alone in 2009 (see Anson 2013). In the case of Bordeaux wines, in 2004
four appellations created their own subgroup: Côtes de Bordeaux is the umbrella
for Premières Côtes de Blaye, Premières Côtes de Bordeaux, Côtes de Castillon,
and Bordeaux Côtes de Francs appellations, all of whom share “the idea of cre-
ating a common sign of recognition.” They consider that recognition is not
provided by their single AOs, but they remain members of the regional wine
commission (see their website bordeaux-cotes.com).
The AOC, as a coalition, is in charge of generic advertising, thanks to funds
provided by the members. A return on investment is expected because of spill-
over effects from the collective reputation toward the individual reputation of
the winery. In Bordeaux, a breakaway group emerged in 2010 because non-
voluntary (i.e., compulsory) fees are not legal, and they felt that the regional
wine commission was not working in the interests of those who compulsorily
support it financially (Anson 2010). But in 2012, the court ruled that wine-
makers must pay the fees. Hence, in France at least, some actors consider
challenging the coalitions. In US wine regions, Rickard et al. (2015) highlight
that individual reputation outside of the umbrella region can be affected by a
collective reputation, even if these individual producers don’t contribute
financially to the promotional efforts, through a reputation-tapping phenom-
enon. In the case of Bordeaux wines, Gergaud et al. (2017) show that if col-
lective reputation generally provides some benefits to individual group
members, the gains obtained from generic promotion by the wine commis-
sion do not always compensate for the costs of mandatory membership.
25.6 Conclusion
The wine market exhibits several different quality signals: individual and col-
lective, private and public. The number of wines benefiting from a protected
designation of origin is increasing in the Old World (Profeta et al. 2010) as
well as in the New World (Easingwood et al. 2011). Similar to brands, AOs
aim to signal quality. If brands support individual reputation, denominations
of origin are a vehicle for collective reputation. Both coexist more and more
frequently on the same label, suggesting in some way a convergence of both
reputational models. Reputation is not supported by a unique model, neither
in the Old World nor in the New World.
Reputation is a key variable in wine markets. The prolific literature on
hedonic pricing highlights its positive effect on price. Livat (2007) has shown
that consumers substitute Bordeaux appellations with the same level of repu-
tation. Livat et al. (forthcoming) show that they substitute them according to
semantic elements, that is, similar names as carriers of reputation, not accord-
mmorag@uchile.cl
ing to intrinsic characteristics of wines associated with the production process

(location, climate, and technology). If such a result pacifies appellations and
brands by highlighting the power of names, it also suggests that the appella-
tion system is not understood by consumers and is currently too complex to
address informational needs in wine markets. Simplification and a lower
degree of horizontal differentiation might be a better option.
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26
The Chilean Wine Cluster
26.1 Introduction
In a few years, the Chilean wine industry became an example of success and a
serious competitor for the European and international wine producers. The
success of the wine industry can be explained by the way it is organized as a
‘cluster’, through horizontal and vertical linkages, where the main stakehold-
ers in the industry are simultaneously in competition and cooperation, that is
to say, ‘coopetition’ (Nalebuff and Brandenburger 1996). Contrary to the
dominant organization of the European wine industry, the Chilean model is
more ‘relational’ (i.e. driven by relationships across the cluster).
The Chilean wine industry achieved unexpected performances in the last
few decades. The industry demonstrated an extraordinary capacity to pro-
duce, export, and compete in international markets. Those achievements are
related to natural conditions (quality of the soils, climate, land, water avail-
ability, etc.) but also to the way the industry is organized. Following the pio-
neering work of Alfred Marshall in 1890, in the last few years there was a
A. Coelho (*)
e-mail: alfredo.coelho@agro-bordeaux.fr
E. Montaigne
Department of Agricultural Economics, Montpellier Supagro, Montpellier, France
e-mail: etienne.montaigne@supagro.inra.fr

https://doi.org/10.1007/978-3-319-98633-3_26
mmorag@uchile.cl
prolific literature about the organization and success of ‘cluster’ o rganizations.1

Despite such important number of publications, there is not a unified theory
allowing to explain the diversity of those institutional arrangements (Bell
et al. 2009). In this perspective, the success of the Chilean wine industry has
been described in the professional publications as ‘the Volvo of the wine
industry’ and attracted a considerable amount of academic research (cf. Visser
and Langen 2006; Giuliani and Bell 2005).
This chapter is structured in three parts. The first part describes and explains
the organization of the wine cluster as an institutional arrangement and intro-
duces the uniqueness of public-private partnerships in Chile. The second part
introduces the key elements of the cluster architecture: trust, the role of the
leading firms, intermediaries, and the capacity of the cluster to solve problems
related to collective action. Finally, the third part presents some performance
achievements and risks and discusses resilience of the wine cluster.
26.2 T
he Wine Cluster as an Institutional
Arrangement
26.2.1 On the ‘Cluster’ Concept
Clusters are ‘geographic concentrations of interconnected companies and

institutions in a particular field’ (Porter 1998, p. 78). The pioneering work of
Marshall (1890) introduced the concepts of agglomeration economies and
positive externalities induced through a collective organization in clusters.
Clusters include a mix of linkages (knowledge, inputs, competencies,
resources, etc.) and supporting institutions (financing, standard setting, edu-
cation, etc.) within a wine region or country (Porter 1998). Clusters are col-
lective projects focused on the long-term survival and development of an
industry or region. Inter-firm cooperation in wine clusters is essential to
ensure long-term focus and competitiveness. The main elements describing
the anatomy of a cluster are the following: trust, the leadership of the main
wine firms, the ability to solve collective action problems (CAPs), and the
availability of efficient intermediaries (grape and wine brokers, importers, dis-
tributors, etc.). Porter applied this concept to the Californian wine cluster
(Porter and Bond 1999).
Frequently used as a synonym of ‘industrial district’.

1
mmorag@uchile.cl
The Chilean Wine Cluster 489
Another stream of literature on ‘business models’ describes ‘clusters’ as

valuable intangible assets (Teece 2010). This concept is also discussed in the
literature on industrial economics as the ‘third Italy’ (Becattini 1992).
The literature on international business and economics also identifies other
wine clusters in Latin America and highlights the importance of government-
sponsored institutions such as Mendoza (Argentina) (McDermott 2007;
McDermott et al. 2009), Serra Gaucha (Brazil) (Fensterseifer and Rastoin
2013), and Baja California (Mexico) (Trejo-Pech et al. 2012).
26.2.2 T
he Role of Public-Private Partnerships
to Promote Efficiency
Public-private partnerships have been pointed out as essential arrangements

to explain the success of several industries and countries.
Innovation priorities in the cluster are decided by common agreement
between firms, associations, public bodies, and other stakeholders. Those pri-
orities integrate the national innovation system. Innovation priorities and
goals were defined through Strategic Plan 2020 (a new strategic plan that sets
up directions for 2025) for the Chilean wine industry. The strategic plan sets
up targets at $3 billion in exports by 2020, through an average interannual
growth rate of 9.2%.
The four main pillars defined in the strategic plan include diversity and
quality, sustainable development, innovation, and country image.
Clonal and sanitary selection of varieties illustrates this strategy. A close
partnership between ENTAV (Etablissement national technique pour
l’amélioration de la vigne), a French institution in charge of improving the
quality of vine plants, and the University of Talca was promoted for the ben-
efit of Chilean nurseries.
26.2.3 A
National Innovation Strategy Adapted
to the Regions
In recent years, Chile implemented projects and programs to reinforce the

participation of the regions in the definition of regional innovation and eco-
nomic development policies. An example of these programs was the creation
of Regional Development Agencies (ARDP). In 2005–2007, the Chilean
government established regional agencies to foster development in produc-
tion in an integrated manner. This process was promoted through Corfo, the
Chilean Economic Development Agency. Corfo is the state agency for the
mmorag@uchile.cl
advancement of economic and regional development in Chile. The agency

finances innovation projects—including wine—through a branch dedicated
to innovation (InnovaCorfo).
Corfo was also involved in the attraction of foreign investments—green-
field, mergers and acquisitions, and joint-ventures—related to wine and sup-
porting industries (suppliers, tourism, etc.). Such actions included the
organization of an international forum targeting overseas investors. Several
editions of the forum were quite successful as it attracted a diversity of inves-
tors (Italy, Spain, the USA, China, etc.) to strengthen cluster activities: grape
nurseries, barrel makers, and so on.
A key role of regional ARDP consisted in the implementation of a bottom-
up approach to facilitate regional innovation agendas and the development of
new projects and programs to enhance competitiveness—Programs for
Modernization and Competitiveness (PMCs)—based on regional assets,
strengths, and opportunities. PMCs defined agendas for the local develop-
ment in each subregion. Three main regions were concerned by those wine-
related programs (see list in Table 26.1 hereafter).
In the programs, the region and stakeholders—public and private organiza-
tions, universities, and civil society—became responsible for defining and
implementing a long-term strategic vision. The ARDP is an important exam-
ple on how to strengthen the participation of regions and implement private-
public partnerships in Chile.
Another major initiative consisted in the allocation of funds for innovation
at the regional level through the Innovation Fund for Competitiveness (FIC)
and regional science and technology centers of CONICYT, the national
agency in charge of R&D projects.
The FIC was established in 2006 as a fund created on the basis of the
resources built on a percentage of sales of copper worldwide (note: Chile is the
world’s largest copper producer). The FIC is the main instrument to allocate
new and more significant resources to the efforts of the Chilean State agencies
in innovation. The two main agencies that benefit from the Chilean State
Table 26.1 Main wine-related Programs for Modernization and Competitiveness

(PMCs)
Region Program Goals
Coquimbo PMC Pisco Spirit (grape wine, spirits) Grape vines, distilled spirit
O’Higgins PMC Vitivinicola del Valle de Colchagua Quality wine
PMC de Turismo Valle de Cachapoal Wine tourism
Maule PMC Vinos de Maule Carmenère grape
PMC Turismo, Vino, Gastronomia Wine and food tourism
Source: Corfo
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resources are Corfo (InnovaCorfo) and CONICYT. The Foundation for

Agrarian Innovation (FIA) is also responsible for the implementation of proj-
ects in viticulture, agriculture, and food.
FIC management is allocated through performance-based agreements
involving the discussion, consultation, and implementation through various
stakeholders of the wine cluster (public and private). This instrument aligns
the priorities of the agencies with the strategic objectives defined by the
Council of Ministers.
26.2.4 A
n Innovation Strategy Driven by the Wine
Industry
Beyond the architecture of the national innovation system extended to the

regions, the Chilean wine industry has established its own innovation system
through the foundation of innovation consortia. The joint work between pro-
ducer associations, research centers, universities, and suppliers included the
creation of innovation consortia for the agriculture and food sector (including
wine).
The creation of consortia initiative began in 2004 under the leadership of
CONICYT and support of the World Bank, Corfo, and FIA agencies.
Initially, 11 consortia were established in Chile with public resources of
approximately 25 million pesos (2200 million pesos/consortium).
Among those consortia, the wine industry founded two consortia dedi-
cated to the cluster—Vinnova and Tecnovid (Santelices et al. 2013). Funding
is usually shared between public and private operators. The first projects
financed (five years) reached $10 million and were financed by public (60%)
and private (40%) sectors and universities. Later, the industry launched a new
wave of medium-term projects co-financed in 2012. These research initiatives
were supported by the Chilean State, moving to a more proactive engagement
in the development of the economy.
In order to develop strategic innovation projects, the industry established
two consortia dedicated to research and development. Both consortia consist
in a public-private partnership whose goal was to bring together industry and
universities to meet the challenges of exporting. The consortium brings
together about a 100 wineries. Close collaboration with UC Davis (California)
and the Australian Wine Research Institute (AWRI) was developed.
Both consortia were grouped into a new entity called I+D Vinos de Chile
S.A. in charge of managing the new wave of projects approved in 2012. This
new consortium is in charge of improving the competitiveness of Chilean
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wines in particular through the efforts of quality and sustainable develop-

ment. It brought together various R&D initiatives dedicated to improving the
competitiveness of the wine cluster and is integrated with the national associa-
tion of Chilean wineries (Asociación Gremial Vinos de Chile). The governance
of the consortium is administered by a dozen members from the industry and
Chilean universities.
This entity complemented R&D efforts made by individual firms. This
consortium has inter-institutional cooperation with universities and research
centers as well as public agencies and private organizations in Chile and
abroad (UC Davis, Liquor Control Board of Ontario (LCBO), Société des
Alcools du Québec (SAQ), Vinmonopolet, etc.).
The main R&D programs endorsed by the consortium cover the following
areas:
• A quality program dedicated to the vineyard (genetic improvements).

• A sustainable development program (wine conservation, terroir and vineyard
zoning, climate change, disease in the vineyard, biodiversity, irrigation,
energy and greenhouse gas emissions, social responsibility, codes of good
practice, suppliers). In 2016, more than 60 vineyards and producers have
been formally certified as Sustainable wine of Chile (www.sustentavid.org).
• A technology transfer program (positioning and differentiation, absorptive
capacity).
Both government-sponsored initiatives combine an approach connected to

the national innovation system (region-based) and another one associated to
the consortium of I+D Vinos de Chile S.A. stimulates innovation and pro-
motes the creation and transfer of knowledge within the cluster. These public-
private partnerships complement the efforts of wineries dedicated to R&D
and innovation.
In general, Chile’s innovation system is often cited by international organi-
zations (The World Bank, OECD) as a model for other developing countries.
This is a third-generation public-private partnership and includes the joint
participation of members from the private sector and public agencies. Third-
generation partnerships raise new problems for the Chilean State as it does
not have a direct control over the assets covered by the partnerships.
26.2.5 An Inter-organizational Structure
The Chilean wine cluster appears as an inter-organizational arrangement that

contributes to a better coordination and boosts competitiveness. Relations
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between stakeholders are characterized simultaneously by situations of com-

petition and cooperation. Clusters include public and private institutions and
horizontal, vertical, and transversal relationships. The frequency and intensity
of the relationships define the strengths of the linkages.
These arrangements and their advantages were described by Porter (1998),
in particular increasing productivity, processing and structuring of innovation
efforts, stimulating new projects, and contributing to the development of
entrepreneurial projects. The Chilean wine cluster is represented synthetically
in Fig. 26.1.
The cluster structuring objectives are defined in conjunction with those
defined in Strategic Plan 2020. The pattern of inter-organizational relation-
ships within the cluster goes beyond the wine cluster itself because relation-
ships with other clusters are possible (e.g. cluster of tourism, food processing
cluster). It should be noted that for several years Chile established a new food
policy ‘Chile: food power’ (Chile, Potencia Agroalimentaria) and actions on
export promotion and attraction of foreign investments, which include the
wine cluster. Those actions integrate the strategic objectives defined in this
policy framework.
Research & Government

Universities Associations Publications Websites
Development organizations
Investors and financial system

Equipments and Accessoires
Grape plants for cultivation for Vinification
Tanks, filters, and barrels

Fertilizers, pesticides,
herbicides, fumigation
Vineyards, 451 Bodegas, Bottles and bottling
equipments
13.844 units Vinification processes,
bottling, labelling
Harvest machines and machines producing wine grapes
for grape crushing Caps, cork stoppers and
cardboard boxes
300 enterprises Labels, bar code, traceability

Irrigation technologies wineries, Vineyards
Public relations, advertising,

and marketing
Other accessories and
equipments
30 Industrial 25 Medium and 252 Medium
dimension and small dimension, and small size,
advanced advanced technology traditional
technology
Structure of the Structure of the tourism

Agricultural National distribution and sector
sector exports Wine roads
Fig. 26.1 An overview of the Chilean wine cluster. (Source: Adapted from Wines of
Chile)
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In recent years, efforts have been made to strengthen the weak links in the
cluster through innovation and R&D projects (Vinnova, Tecnovid,
CONICYT), an active policy to attract foreign investments to meet the needs
and overcome the weaknesses of the cluster (Prochile, Corfo).
26.3 The Architecture of the Wine Cluster

26.3.1 T
rust and the Ability to Solve Collective Action
Problems
A set of trust relationships between the stakeholders stimulates cooperation in

the cluster. Trust relationships limit opportunism, facilitate coordination, and
contribute to solve CAPs (see, e.g. Visser and Langen 2006). Social capital
and trust are two essential elements for the implementation of a third genera-
tion of public-private partnerships.
Leading firms may contribute to solve CAPs because they have a direct
control over strategic resources and incentives. On the other hand, the quality
of cluster governance and the resolution of CAPs depend on the institutions,
such as associations, the availability of public or private institutions, and the
pressure exerted by the dominant stakeholders (‘voice’ and ‘exit’).
26.3.2 New Firms Entering into the Industry
Over the last few decades, the cluster attracted a great number of new firms,
particularly new wineries and grape nurseries (see Fig. 26.2). The number of
new wineries increased particularly in two decades (1990–2009). The estab-
lishment of new firms was significant during the expansion of Chilean wine
exports backed through government initiatives.
A significant number of grapevine nurseries were established after 2001.
Twenty-two new grape nurseries were established after 2001 to supply Vitis
vinifera plants. According to ODEPA (2015), the volume of Vitis vinifera
plants marketed in Chile (7.2 million plants in 2014) is considerably higher
than the plants supplied for the production of table grapes (approximately 3.3
million of plants in 2014). The establishment of a new wave of wineries
increased the needs for the supply of certified vine plants. Therefore, the num-
ber of domestic and international grape nurseries expanded likewise.
Some of the main leading wineries established their own grape nurseries in
the early 2000s: Viña Concha y Toro (Lourdes, 2000) and Viña Santa Rita
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120
100 98 98
80 75 72
Number of firms
60
48
40
25
20 21
20
8 10 8
1 1 4 2 4 4 2
0
Before 1960 1961-70 1971-80 1981-90 1991-2000 2001-2009 Aer 2010
Bodegas - year of establishment Grape nurseries (main acvity)

Grapevine nurseries (vis vinifera, main acvity) Grape nurseries (secondary acvity)
Fig. 26.2 Establishment dates of grape nurseries and bodegas in Chile. (Note 1: new
wineries include both the bodegas producing more than 300,000 liters and the bode-
gas with an export activity. Data includes established wineries until 2011 (Source: INE);
Note 2: grape nurseries include the suppliers of Vitis vinifera plants and the suppliers
of table wine plants. Some of the grape nurseries supplying plants for table grapes
may also supply Vitis vinifera plants. Data includes established firms in 2015 (Source:
SAG))
(Santa Rita, 2000). Other wineries launched their own nurseries in a later
phase: Viña Undurraga (La Rioja, 2009), Viña Almaviva (2009), and Viña
Santa Carolina (2014). The cluster attracted foreign grape Vitis vinifera nurs-
eries quite early. Two French nurseries established production facilities in
Chile: Pepinières Guillaume in 2001 and Pepinières Richter in 2009.
26.3.3 C
oncentration and Role of the Leading Wine
Firms
Leading firms must ensure leadership and demonstrate a capacity to adapt

and innovate (R&D efforts, etc.). In export markets, leading firms may act as
entrepreneurial ‘icebreakers’ creating opportunities for small and medium
firms in the cluster (e.g. the penetration of distribution networks and market-
ing channels).
Further, the leading wine firms are members of a national association of
wine producers accounting for more than 95% of the country’s wine produc-
tion. Within the public-private partnership, the main public agencies provide
support (technical, financial, administrative, legal, etc.) to the wine cluster
either at the regional, national, or international levels.
The Chilean wine industry is highly concentrated, with the four leading
firms accounting for more than 88% of volumes sold on the domestic market.
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Table 26.2 Concentration of the market shares in the domestic market of the leading
wine firms in Chile (% of the total volumes)
2005 2008 2010 2013 2015
Concha y Toro 27.1 29.7 30.7 28.5 28.1
Santa Rita 24.4 28.7 29.4 29.5 31.6
San Pedro Tarapacà 21.7 23 24.4 27.3 28.4
Santa Carolina 3.2 2 1.8 1.4 0.6
Others 23.6 16.6 13.7 13.4 11
Source: Concha y Toro
In addition, concentration of leading firms increased over time (see Table 26.2

hereafter). For example, one of the major operations concerned the merger of
San Pedro Wine Group with Tarapacà in 2008 to establish one of the top four
leading firms in the cluster.
The Chilean leading wineries are all publicly listed in the stock exchange
and the founding families own significant shareholdings in the firms. For
example, Concha y Toro has been listed in the Santiago Stock Exchange in
Chile since 1933, but it is also listed on the New York Stock Exchange. These
leading firms are also important wine producers and investors in Mendoza
(Argentina). Concha y Toro operates through Trivento, its Argentinean-
owned subsidiary and one of the top three leading wine exporters in Argentina.
The degree of concentration reflects greater bargaining power for the pur-
chase of wine grapes and bulk wine. Despite the expansion of vineyard sur-
faces directly controlled by the leading Chilean firms, those firms are not
completely self-sufficient.
Further, concentration facilitates investment, particularly in intangible
assets and overall guidance of the Chilean industry. For example, the CEO of
Concha y Toro, Rafael Guilisasti, has long been the chairman of the main
Chilean wine association—Asociación de Viñas de Chile—and a Corfo advisor.
Mr. Guilisasti was one of the main negotiators of the Free Trade Agreement
between Chile and the European Union (EU). Following the agreement,
Chilean wine exporters benefit from a unique tax advantage among New
World wine producers (0% taxation for wine exports to the EU).
Corfo provides financing for product, process, and organizational innova-
tion at the different levels of the wine cluster. The main mission of the agency
is to transform Chile in a global innovation and entrepreneurial hub. The
agency has representative offices in the Chilean regions but also a dedicated
branch to attract foreign investors (nurseries, wineries, equipment suppliers,
etc.). Corfo promotes investment and coordination among stakeholders in
different areas, particularly in the less competitive linkages of the wine
cluster.
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Another government agency—Prochile—acting as Chile’s trade facilitator

and promotion agency includes 15 regional offices and representatives in over
55 offices worldwide. The main activities of Prochile include boosting the
Chilean export basis by engaging new firms in export activities. Further, the
agency helps firms to foster the internationalization processes and promotes
wine tourism. Wines of Chile are in charge of the wine promotion of Chilean
wines. Promotions are co-founded through wine producers associations. The
Chilean government contributes with 15% of the total amount, through
Prochile. This agency also provides logistics and market information to winer-
ies and sponsors other generic market campaigns such as ‘Taste of Chile’
(Hennicke 2015).
The main wine firms have the ability to absorb knowledge. Those firms are
active in the acquisition, creation, and transfer of knowledge. Firms differ on
their cognitive capacity (Giuliani and Bell 2005). The financial strength and
strategic objectives facilitate investments in R&D. For example, in early 2015,
Concha y Toro has invested $5 million for the opening in Chile of a research
facility dedicated to R&D in viticulture and oenology. Concha y Toro’s R&D
partnerships include, among others, joint activities with UC Davis (California)
and Mercier nurseries (France).
Further, those firms also influence coordination and control. This phenom-
enon is of particular interest when transaction costs are low and coordination
is exerted through non-market-based mechanisms.
Intermediaries (grape and wine brokers, etc.) also play an important role in
strengthening the relationships between stakeholders and in lowering transac-
tion costs (Montaigne and Coelho 2012; Baritaux et al. 2005). Wine brokers
are important in revealing information (volumes, stocks, prices) not publicly
available, particularly when prices and volumes for entry-level wines are quite
important. Intermediaries can also play an important role in financing small
and medium companies and reducing transaction costs.
26.3.4 T
he Influence of Strategic Alliances and Foreign
Investments
Since the first foreign investment in the Chilean wine production by Miguel
Torres (Spain) in 1979, many foreign investors were attracted by the Chilean
wine cluster. These investments have taken two main forms: greenfield invest-
ments in production and strategic alliances (or joint-ventures).
Chile’s strengths as a wine producer are numerous: low disease pressure in
the vineyard, diversity of climates and soils, lack of constraints for extending
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vineyard plantings, a favorable ecosystem for innovation, and differentiation

through the production of a high-potential grape variety Carmenère (red
wine). However, it seems important to note the international image of Chile
is of an international producer of entry-level varietal wines, at very competi-
tive prices. For example, Cabernet Sauvignon is the most widespread grape
variety, occupying nearly a third of the vineyard surfaces. The price for
Cabernet Sauvignon in bulk can reach as low as 35 cents/liter on European
markets. This price is below the average market prices for bulk wine in
Castilla-La Mancha. This region is the lowest cost producer in Southern
Europe. Chilean wine tends to be a good ‘value for money’ and a quite popu-
lar supplier among international bulk wine buyers. Those conditions necessar-
ily attract foreign investors to the Chilean wine cluster.
Chile is not only a low-cost producer, but it also produces wines at different
price ranges. In the country, many international joint-ventures were estab-
lished with the objective of producing high-quality premium wines. For
example, in 1997, Concha y Toro has signed a cooperation agreement with
the Bordeaux-based winemaker Baron Philippe de Rothschild for the joint
production of a Chilean wine—Almaviva—exported at an average price of
$80 per bottle.
Inter-firm cooperation agreements in the alcohol beverage industries are
essential to improve efficiency and upgrade products and processes. These
agreements facilitate sharing resources among partners (Coelho and Rastoin
2004). Thus, the ‘partners’ in the alcoholic beverages sectors can benefit from
leverage effects and reinforce their strengths as well as limit their weaknesses.
In addition, by putting together a pool of resources, raw material suppliers
and wine producers in the cluster can benefit from the economies induced
through the cluster (‘size’ effects). In the alcohol industries we can identify, at
least, four types of inter-firm agreements:
• Agreements whose main motivation is to obtain raw materials (wine grapes,

a specific type of grape or a particular geographical origin, bulk wine, etc.)
• Inter-firm agreements where the primary goal is to increase the crushing or
processing capacity
• Inter-firm agreements where the main motivation is to get access to distri-
bution networks
• Inter-firm agreements where the main objective is to target advertising and
promotional objectives or a specific marketing goal
According to Torres et al. (2008), during the period 1998–2004, the average
price of wine exported for wineries involved in international joint-ventures
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projects (US $4.9/bottle) was higher than average prices for the wines pro-
duced through foreign-owned subsidiaries (US $1.6/bottle). Moreover, exports
of wines associated with joint-ventures accounted for price ranging from 23%
to 30% of the market for super-premium wines, while the same segment
accounted only for 9% to 17% of the subsidiaries of foreign-owned firms.
Farinelli (2012, p. 204) explains the main interests of inter-firm agreements
in the Chilean wine cluster:
• Joint-ventures were a combination of unique resources, combining local

and international knowledge, and a learning opportunity for partners.
• Local partners see the joint-venture as a quick way to access international
markets and to make fast technology changes. Local partners perceive
inter-firm agreements as a way to reduce time and effort necessary to access
to knowledge related to soils, climates, and grape-growing practices.
• This is a ‘win-win’ situation. It brings mutual benefits for partners as it is
specific to the Chilean wine industry and cannot be replicated into the
international wine industry. Joint-ventures are a set of unique factors
related to the industry and include institutional benefits.
The main strategic alliances and foreign investments in the Chilean wine
cluster are detailed hereafter (Fig. 26.3).
• 1970: Miguel Torres S.A. (Espagne) (the pionnier) Miguel Torres (Chile)
• Gonzalez Byass (Esp.) Conde de Aconcagua (JV c/ Estampa)
• Guelbenzu (Esp.) Guelbenzu
• Bodegas y Bebidas (Esp.) Selentia (JV c. grupo San Pedro)
• Antinori (Ita.) Haras de Pirque
• Francesco Marone Cinzano (Ita.) Reserva de Caliboro
• Baron Philippe Rothschild (Fra.) Almaviva (JV c/ Concha y Toro)
• Los Vascos (JV c/ grupo Santa Rita)
• Bruno Prats (Fra.) Aquitania (JV)
• Château Dassault (Fra.) Altair (JV c/ grupo San Pedro)
• Marnier Lapostolle (Fra.) Lapostolle
• Boisset (Fra.) Gracia (JV c/ grupo Corpora)
• Château Larose Tritaudon (Fra.) Casas del Toqui
• Laroche (Fra.) (JEANJEAN since OCT. 2009 – Languedoc) Araucano
• Billington (EUA) Billington
• Kendall Jackson (EUA) Calina
• Robert Mondavi (EUA) Caliterra (JV c/ grupo Errazuriz)
• Beringer Blass (EUA) Domaine Conte (JV c/ Santa Carolina)
• Franciscan Vineyards (EUA) Veramonte
• Odfjell (Norvège) Odfjell
• Sogrape (Portugal) Los Boldos
• Accolade Wines (Australia) Anakena
Fig. 26.3 Main joint-ventures and foreign investments in the Chilean wine cluster
(1979–2018). (Source: World Wine Data 2018)
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26.3.5 P
enetrating International Markets Through Free
Trade Agreements and Generic Promotion
Like New Zealand, Chile is an economy oriented toward agro-exports. The

signing of free trade agreements with strategic trading partners offers the
country a comparative advantage unmatched by the main international
competitors.
The development of Chilean exports at the international level is ensured
through reduction or elimination of trade barriers. Over the years, the Chilean
government engaged on a trade liberalization process and signed many bilat-
eral and multilateral agreements, including free trade agreements with the
EU, the USA, China, and Japan. In the last decades, Chile signed 20 coopera-
tion agreements, involving 57 countries.
Free trade agreements provide considerable advantages for bottled and bulk
wine exporters to penetrate international markets. For example, following the
free trade agreement between China and Chile, starting on 2015, Chile
stopped paying any duties (0%) to export their wines to China. Also, Chilean
bulk wine exporters do not pay any duty to export their wines to the EU. This
provides a competitive advantage to Chilean wine producers when compared
to other New World wine producers. Bulk wines being quite price-sensitive,
it makes international free trade agreements a key advantage for the
industry.
Generic promotion of Chile is also one of the strategic orientations for the
competitiveness of the cluster in international markets. Three organizations
are highly active in promoting the image of the country: Chile Foundation,
Prochile, and Wines of Chile. Generic promotion of the country’s image is
also co-financed. Strategic Plan 2020 forecasts a considerable increase in funds
dedicated to the promotion of wines, starting on US $7.50 million in 2010 to
reach US $19.02 million by 2020. This strategy will raise investments in pro-
motion from US $0.17/case to US $0.24/case by 2020 (Cogea 2014,
pp. 91–92).
26.4 P
erformances, Risks, and Resilience
in the Chilean Wine Cluster
Collective management of the wine cluster offers significant competitiveness
advantages. We can point out many indicators justifying the success of the
Chilean wine cluster: expansion of production potential, increasing market
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shares in key export markets (the USA, Canada, the UK, Japan, Brazil, etc.),
international recognition (medals, green awards), attractiveness of the cluster
to foreign investors, financial performance of the wine companies, offering
quality wines at very competitive prices—particularly in the entry-level seg-
ments—and adaptability and innovation among industry firms.
In the past, grape plantings in Chile have been steady for many decades as
the legislation established on 1974 banned grape plantings and replanting.
Changes operated in the legislation in 1985 suppressed the barriers to new
plantings and extended the possibility to produce wines from table grapes
(González et al. 2014). In the following years, Chilean wine expanded consid-
erably the surfaces planted with Vitis vinifera grapes. Nowadays, the produc-
tion in the country remains highly dependent on the surfaces of Cabernet
Sauvignon (see Fig. 26.4).
The expansion of surfaces did not spread homogeneously. The main wine
regions remain Maule and O’Higgins, but on an attempt to diversify the sup-
ply of wines and adapt to climate change, the industry also expanded to new
Northern in Southern non-traditional wine regions but which provide a
potential to grow grapes adapted to the palates of international wine markets
(e.g. the production of Riesling and sparkling wines) (see Table 26.3).
The particular case of the Bío Bío region contrasts with the general trend in
Chile as the region shrank by 30.5% its grape surfaces between 2000 and
160000
Total surfaces
140000
Cabernet Sauvignon
120000
100000
80000
60000
40000
20000
0
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Fig. 26.4 Evolution of wine grape plantings in Chile (ha) (1994–2014). (Source:
Elaborated by authors based on data from ODEPA)
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Table 26.3 Evolution of wine grape plantings in the main regions in Chile (2000–2014)
(ha)
Var. Var. Var.
2000 2005 2010 2014 00–05 10–14 00–14
Maule 45,050 49,335 45,850 53,496 9.5% 16.7% 18.7%
O’Higgins 29,041 32,553 38,517 47,382 12.1% 23.0% 63.2%
Metropolitana 9450 10,783 12,432 13,398 14.1% 7.8% 41.8%
Valparaiso 4782 5524 9050 10,162 15.5% 12.3% 112.5%
Bío Bío 13,744 13,970 8085 9568 1.6% 18.3% −30.4%
Coquimbo 1804 2197 2766 3383 21.8% 22.3% 87.5%
Other regions 60,630 67,307 79,557 87,469 11.0% 9.9% 44.3%
Total surfaces (ha) 103,876 114,445 122,641 137,582 10.2% 12.2% 32.4%
Source: SAG
Table 26.4 Evolution of grape variety plantings, wine production, and exports in Chile
(2000–2015)
Var. Var. Var.
2000 2005 2010 2015 00–05 10–15 00–15
Surfaces Vitis 103,876 114,448 116,831 135,582 10.2% 16.0% 30.5%
vinifera (ha)
Cabernet 35,967 40,441 38,426 44,176 12.4% 15.0% 22.8%
Sauvignon (ha)
Carmenère (ha) 4719 6849 9502 11,319 45.1% 19.1% 139.9%
País (ha) 15,179 14,909 5855 7653 −1.8% 30.7% −49.6%
Production 6419 7894 8844 12,867 23.0% 45.5% 100.5%
(million hl)
Wine exports 2.65 4.14 7.25 8.75 56.2% 20.7% 230.2%
(million hl)
Wine exports 0.569 0.872 1533 1826 53.3% 19.1% 220.9%
(billion $US)
Source: ODEPA, SAG
2014. This region concentrates the highest percentage of small grape produc-
ers owning less than 1 ha (accounting for 70% of all Chile) and producers face
considerable changes in competitiveness and bargaining power in the market
for grapes.
Grape producers also showed an increasing interest for Carmenère, a tradi-
tional Bordeaux red variety with a high potential to target international mar-
kets (+139.9%). At the opposite, the surfaces of traditional País variety were
cut but half (−49.5%) as it showed little interest for export markets. Therefore,
Chilean wine producers adapted their production potential to the interna-
tional wine demand (see Table 26.4).
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In addition, the exports in volume and value—in line with the goals defined
in Strategic Plan 2020—had a strong increase (+230% in volume and +220%
in value). These indicators demonstrate how successful Chile was in penetrat-
ing international markets.
In the long run, firms look to increase the average price per case of wine
exported; however, wine exports remain concentrated in the price bracket US
$20–29.9/case (Fig. 26.5). Despite of an internationally attractive bulk wine
market, it does not seem to be a priority for the industry as the average prices
and margins in this market remain low. The bulk wine market is often an
adjustment factor to help the industry to reach market balances (production,
domestic consumption, stocks, volumes exported).
Based on studies on the perception of the actors, Lobos and Viviani (2010)
and González et al. (2014) identified the main sources of risks in the wine
cluster. Those sources include the exchange rate, wine prices, climate change,
and the variability on the profit rates. According to the above authors, small
vineyards attribute more importance to the following factors: wine prices,
climate change, yields (productivity), and food security risks. Small vineyards
attribute less importance to legal and environmental risks as well as the price
of grapes. The coverage of agricultural risks in Chile through insurance or
other derivatives is rare in the country.
Risk is included in the resilience scope (Bhamra et al. 2011). The concept
of resilience was first introduced in the literature by Holling (1973) and led to
an extensive literature (Coutu 2002; Hamel and Valikangas 2003; Bhamra
et al. 2011). We can define resilience as ‘the capacity to continuous recon-
struction’ (Hamel and Valikangas 2003). Sudden changes in the business
environment—turbulences and discontinuities—may impact considerably
the long-term performances of the Chilean wine cluster. Major disasters, such
600 25
Millon cases (12 bot. 750 cc)
500 20
400
Millon USD
15
300
10
200
100 5
0 0
Superior to 100 60 to 99.9 40 to 59.9 30 to 39.9 20 to 29.9 Lower than 20
Vol. 2014 Vol. 2015 Value 2014 Value 2015
Fig. 26.5 Exports of bottled wine from Chile per price bracket (US$/case) (2014–2015).
(Source: ODEPA)
mmorag@uchile.cl
as the Chilean earthquake on February 2010, or institutional, economic, or

political negative shocks may disrupt the wine cluster. Wine clusters are con-
stantly exposed to external disruptions due to changes in the industry and in
the market. The ability to adapt to these changes—that is, resilience—deter-
mines the evolution of the wine cluster after such disruptions (maintain
momentum, cooperation among stakeholders, etc.). Over the last years, the
Chilean wine cluster was able to adapt to external disruptions (e.g. political
cycles, earthquakes, etc.) and to introduce minor and major changes without
losing its own identity.
The Chilean wine cluster also demonstrated it is able to adapt in the long
run. Indigenous and foreign-owned firms brought new knowledge to the
industry. The leading Chilean wine firms filled institutional voids by creating
an intra-firm market for innovation (Castellaci 2015).Collective initiatives
and the interconnection of public-private partnerships reinforced the resil-
ience of wine cluster (Castellaci 2015).
26.5 Conclusion
The Chilean wine cluster is an institutional arrangement that promotes com-
petitiveness and strengthens firms’ adaptability and resilience during wine and
economic crises. The Chilean model is unique and difficult to reproduce due
to conditions related to agro-export orientation, concentration of firms, and
public-private partnerships in the cluster. This model is similar to the New
Zealand wine cluster. Nevertheless, beyond the socioeconomic embeddedness
and the specialization in typical grape varieties (Sauvignon Blanc and Pinot
Noir), New Zealand has the highest world average prices for wines exported.
In recent years, Chile achieved significant progress in competitiveness.
Substantial improvements are still needed to ensure the sustainability of the
wine cluster in the long run (Lima 2015).
Efficiency and dynamic institutional arrangements are strongly influenced
by the national and regional political cycles. The financing of innovation and
R&D activities depends largely on the availability of funds provided by inter-
national sales and copper prices.
The asymmetry of power in the negotiations for the payment of wine grapes
or bulk wine frequently challenges small- and medium-sized producers.
Overproduction leads to market imbalances, national wine prices are subject
to high variability, and the domestic demand is unable to absorb the excess of
wines on the market. Those are some of the common challenges the wine
cluster should address in the future.
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mmorag@uchile.cl
27
Producing and Consuming Locally:
Switzerland as a Local Market
Philippe Masset and Jean-Philippe Weisskopf
27.1 Introduction
To date the wine economics literature has almost completely neglected
Switzerland and its wines, unlike its neighboring countries France, Italy and
Germany, which have been subject to numerous research papers. There are
several reasons which may justify this lack of interest in Swiss wines.
Switzerland is a small player on the global wine market as it ranks only 24th
in terms of volumes produced (Wine Institute 2014b). Moreover, given its
high consumption of wine per capita (about 40 liters per year and per inhabit-
ant, Wine Institute 2014a), the local production is not sufficient to satisfy the
demand. Thus, exports of Swiss wines are negligible (less than 1%, Bundesamt
für Landwirtschaft 2015). As a consequence, the reputation and visibility of
Swiss wines outside the country itself remain very limited.
Switzerland, nevertheless, displays specificities that warrant a deeper analy-
sis. First, the structure of the Swiss wine industry and the business models
adopted by most wine producers are particular. A large number of small and
family-run wineries, which predominantly sell their wines directly to final
customers, coexist with a few cooperatives and large wineries, which sell most
of their wines through retailers. Second, the production conditions are dis-
tinctive due to both the geography of the country and its high labor costs.
Switzerland’s vineyards spread along Alpine valleys, rivers and lakes and tend
P. Masset (*) • J.-P. Weisskopf

Ecole hôtelière de Lausanne, HES-SO // University of Applied Sciences
Western Switzerland, Lausanne, Switzerland
e-mail: philippe.MASSET@ehl.ch; Jean-Philippe.WEISSKOPF@ehl.ch

https://doi.org/10.1007/978-3-319-98633-3_27
mmorag@uchile.cl
508 P. Masset and J.-P. Weisskopf
to be very sloping in nature, thereby making it difficult to mechanize the

wine-growing process. The presence of a large mountain range in the middle
of the country further leads to the existence of multiple microclimates charac-
terized by diverse weather patterns and soil types. This variety allows Swiss
producers to offer a great diversity of wines,1 which is both an opportunity—
as it allows a better match with customers’ taste—and an additional source of
complexity, especially for foreigners. Wages and land prices, which are among
the highest in the world, push up the prices of local products including wines.
Third, the market is characterized by low trade barriers and the presence of
numerous wine merchants, which result in aggressive pricing of foreign wines.
Thus, local producers have to remain competitive in comparison to foreign
wines and are not in a position to raise their prices in order to exploit the
demand-supply imbalance. Overall, these elements result in a complex situa-
tion, which is best summarized by two quotes, which may appear contradic-
tory at first: “entry-level Swiss wines are the most expensive in the world”,2
while “the best Swiss wines are still a bargain for the quality”.3 The costs of
production result in high prices on average, while the pressure from imports
and the lack of visibility of Swiss wines prevent the best producers from
increasing their prices to the level of their peers from more reputed regions.
The remainder of this chapter discusses and analyzes the elements intro-
duced above in detail. We devote particular attention to the business models
adopted by Swiss wineries and their fit with the conditions of production and
the organization of the wine market in Switzerland. This chapter proceeds as
follows: the next section (Sect. 27.2) discusses wine production in Switzerland.
Section 27.3 examines the market for local and foreign wines in Switzerland.
In Sect. 27.4, we present the various business models that are encountered in
Switzerland and analyze their respective performance. Section 27.5 concludes.
27.2 Wine Production in Switzerland

27.2.1 History of Wine in Switzerland
Switzerland has a long history of wine growing. Vine plants dating back to the
Iron Age (around 800 BC) have been found in Valais. Under the Roman
1
Switzerland hosts more than 50 indigenous grapes in addition to international varieties.
2
Philippe Bovet, quoted in Mathez de Senger (2015).
3
José Vouillamoz, quoted in Laird (2013).
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Producing and Consuming Locally: Switzerland as a Local Market 509
Empire, the production of wine rapidly increased. During the Middle Ages,
abbeys and monks further fostered the production of wine in Switzerland,
notably in the regions of Neuchâtel (Carthusian monastery of La Lance),
Vaud (Abbeys of Aucrêt and Montheron in the Lavaux) and Valais (Abbey of
Saint Maurice, Monastery of Notre-Dame de Géronde). At that time, wine
was mostly produced to satisfy one’s own needs and not for sale. The situation
evolved and, following the 1847 Sonderbund War, entrepreneurs took over
wine production from the monks and turned it into a flourishing business.4
In 1850, vineyards covered 35,000 hectares (ha), more than twice today’s
surface (Swiss Wine 2015). The decline in acreages after 1850 can be attrib-
uted to natural, demographic and economic factors. The natural factor takes
the shape of a deadly foe for vines, the phylloxera. It was first identified in
1854 in New York State and rapidly proliferated. By 1861, it had reached
Europe. In Switzerland, the arrival of the destructive insect is reported a few
years later (Forel 1874). Despite desperate actions from Swiss authorities, it
eventually destroyed much of the existing vineyards (Dumartheray 2012).
During the first half of the twentieth century, the acreages devoted to vines
continued their decline and never recovered from the phylloxera outbreak.
Various demographic and economic factors are partially responsible for
explaining this stagnation (Virieux 1947). The rapid urbanization of
Switzerland and the small surface of the Swiss Plateau (which is both the most
densely inhabited region in Switzerland and also where the vast majority of
the vineyards are located) limit the space available for wine growing.
Insufficient profitability and increased competition from foreign wines put
additional pressure on the Swiss wine industry. Another factor that contrib-
uted to the sluggishness of the Swiss wine sector relates to old succession laws,
which favored the parceling of land. As most wineries in Switzerland are
family-owned, the enforcement of this law has made it difficult for wine pro-
ducers to ensure the financial viability of their operations over the long term.
This law also provides some justification for the relatively small size of winer-
ies in Switzerland. According to Emery (2001), the 5259 ha of wine growing
in Valais are represented by 119,500 parcels owned by about 23,000 propri-
etors. More than half of these proprietors cultivate wine on less than 1000
square meters and only 250 own more than 2 ha.
More recently, the trend of reducing wine-growing areas has not only
receded but has even started to reverse with a timid increase of 4% between
the mid-1980s and 2014. The quantity of wine produced has nevertheless
Zufferey (2010).
4
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decreased by about one third over the same period (Bundesamt für
Landwirtschaft 2015). This lower productivity per hectare reflects a shift from
a mostly quantity-oriented production toward a more qualitative approach.
At the same time, the decline in productivity also induced an increased
demand for foreign wines, which has led to a more competitive environment.
The progressive liberalization of wine imports has accentuated this phenom-
enon. The past decades have been characterized by a desire by more and more
Swiss producers to boost the quality of their wines. This trend finds its origin
in Valais, the largest wine-producing region in Switzerland, but has since
spread over the whole country. In Valais, Louis Imhof, Simon Maye and
Charles Caloz have played an important role in this evolution. In 1966, they
founded the Saint Théodule Guild, whose primary objective was to foster the
production of high-quality wines in Valais.5 Since 1966, the Guild has seen a
dramatic increase in size, with more and more producers willing to become
members, thereby reflecting their eagerness to provide the market with wines
of high quality. Producers from other parts of the country have also started to
recognize the potential offered by their terroir and some of them (e.g. Daniel
and Martha Gantenbein, Luigi Zanini, Jean-Michel Novelle) have acquired a
strong reputation, not only in Switzerland but also on foreign markets.6
27.2.2 Geography, Climate and Classification System
Switzerland is a fairly small country (41,285 square kilometers) with a moun-

tainous landscape. From a geographical viewpoint, the country can be subdi-
vided into three parts: the Alps (around 60% of the surface), the Jura (a
mid-altitude mountain range that accounts for about 10% of the surface) and
the Plateau, which stands in-between the Jura and the Alps and is densely
populated (close to 400 people per square kilometer, about 30% of the sur-
face). As a result, only a small part of the country can be considered as suitable
for wine production. Most of the acreage available for growing wine can be
found on the Plateau (especially in its Western part) and in Alpine valleys
such as the Valais (which corresponds to the northern tip of the Rhone Valley)
or Graubünden (the southern tip of the Rhine). As such, the production of
wine in the country remains modest (around 115 million liters in 2013) when
compared to France (4200 million liters) or Italy (4400 million liters). It
Feuille d’Avis du Valais (1966).

5
For instance, Daniel and Martha Gantenbein export about two thirds of their production and have
6
made it into Fallstaff’s list of the 100 best wines in the world.
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evertheless ranks Switzerland 24th in the world in terms of production

n
(Wine Institute 2014a, b).
Switzerland is located in the middle of Europe and is surrounded by three
of the world’s most important wine-producing countries: France, Italy and
Germany. Famous wine-growing regions such as Burgundy (Côte de Beaune
and Côte de Nuits), the Rhone Valley (Côte-Rôtie, Hermitage, Châteauneuf-
du-Pape) and Piedmont (Barolo and Barbaresco) lie within a less than 200
kilometer radius from Switzerland. The climate on the Swiss Plateau is conti-
nental and is close to climatic conditions in Burgundy and home to rather
cooler grape varieties. In the Valais, on the other hand, we observe an arid
climate with low precipitations and high average temperatures but cool nights
due to the mountains and altitude. In Ticino, a third, distinct, more
Mediterranean climate is discernible. Sunshine is longer and rain is common
in spring. The soil in which wine is grown varies quite widely as well. The
Plateau is primarily gravelly, the Valais has soil ranging from granite to schist
and limestone, and Ticino is composed of granite in the North and limestone
in the South. Overall, the elements for producing high-quality wines are pres-
ent in several of the largest wine-producing areas in Switzerland (e.g. Valais,
Ticino or Graubünden).
The country still lacks a clear and homogeneous classification system such
as the ones encountered in Piedmont, Bordeaux or Burgundy. Not being in
the European Union, Switzerland is not required to implement the same reg-
ulations as its neighboring countries. Until recently it was therefore up to the
vintners to decide what to put on the label. The situation started to change
about two decades ago when Appellation d’origine contrôlée (AOC) systems,
similar to those used in France, were progressively put in place. However, as a
federal country, Switzerland grants considerable autonomy to the cantons
responsible for implementing these new regulations. This decentralized orga-
nization impedes a unified brand appearance of Swiss wines, as the various
wine-producing regions of the country follow different rules and have differ-
ent marketing strategies. As an example, the terminology “Grand Cru” is used
in Vaud and Valais, while the terminology “Premier Grand Cru” is encoun-
tered in Geneva and Vaud. The conditions for a wine to obtain this title are,
however, different in all three cantons (which together represent 75% of the
production in Switzerland) leading to an incomprehension by customers
(Thomas 2014). This situation results in an additional source of complexity,
which makes it difficult for customers to understand different terroirs or his-
torical status and their impact on wine quality and pricing.
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27.2.3 Wine Regions and Wine Styles
The Alps and differences in altitudes, soil composition, exposures and hygrom-
etry result in a variety of terroirs and, thus, a surprisingly large number of
wine types can be encountered in Switzerland.
Swiss wine is produced on 14,883 ha of vineyards, mainly located in the
west and in the south of Switzerland. Switzerland is further subdivided into
six wine-growing regions. The canton of Valais (5000 ha) represents the larg-
est wine-growing surface followed by Vaud (3800 ha), the German-speaking
part of Switzerland (2600 ha), Geneva (1400 ha), Ticino (1100 ha) and the
three-lake region (950 ha).7 Some “terroirs” benefit from an especially strong
reputation. This is the case for the canton of Vaud whose Chasselas from
Calamin or Dézaley are well-known. In Valais, the villages of Fully and
Chamoson are well-known for their Petite Arvine and Syrah, respectively. The
cantons of Graubünden and Ticino are recognized for the quality of their
Pinot Noir and Merlot, respectively.
Red wine varieties account for 58% of the total surface and white varieties
for the remaining 42%, with a mixture of international and local varieties,
some of which have been created by the Swiss oenological research center. The
most common international grape varieties include Cabernet Franc, Cabernet
Sauvignon, Gamay, Merlot, Pinot Noir and Syrah for red, and Chardonnay,
Marsanne, Müller-Thurgau, Pinot Gris and Sauvignon Blanc for white. The
country is also home to a variety of “specialties”, that is, indigenous varieties
such as Carminoir, Cornalin, Diolinoir, Gamaret, Garanoir and Humagne
Rouge for red, and Amigne, Chasselas, Humagne Blanche, Païen, Petite
Arvine and Johannisberg for white. Over the past two decades, wines pro-
duced from these varieties have seen their market share increase. These variet-
ies possess the potential to produce wines of great interest but generally require
a lot of attention and are production-wise not always as efficient as interna-
tional varietals.
27.3 The Wine Market in Switzerland

Since 1980, the wine supply from the Swiss market has always been lower
than domestic consumption. As shown in Table 27.1, the breakdown of con-
sumption between Swiss and foreign wines remains stable over time with
All data in this section is taken from BLW (2015).

7
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Table 27.1 Consumption, imports and exports (2008–2013)

2008 2009 2010 2011 2012 2013
Consumption 293.0 303.0 297.9 302.3 291.5 269.4
Imports 187.6 193.6 196.9 192.5 192.8 187.3
Production 107.4 111.4 103.1 112.0 100.4 83.9
Exports 2.0 1.9 2.1 2.2 1.7 1.8
Notes: Quantity in million liters
Source: GTIS, Euromonitor International
39.2% and 60.8%, respectively, for 2013. Switzerland thus has to resort to
wine imports (1.85 million hl) and is only able to export a marginal fraction
of its production (17,000 hl).
Consumers primarily buy wine in supermarkets, followed by direct pur-
chases from producers and specialty shops. While the latter two remain at a
relatively constant market share, supermarkets have managed to increase their
market share gradually and this distribution channel now represents 42% of
total sales.8 However, wines sold at supermarkets come mostly from abroad or
from large domestic wine producers. Smaller or more renowned producers
tend to sell their production directly to customers, often based on a reserva-
tion system, with a limited quantity that each customer may purchase. In this
section, we first examine the situation of foreign wines in Switzerland and
then move to the analysis of the market for local wines.
27.3.1 S
pecificities of the Market for Foreign Wines
in Switzerland
As domestic production is not sufficient to cover demand, 60% of wines have

to be imported to cover total consumption. Switzerland has established rules
and quotas on imports of agricultural products and therefore on wine through
time. Until 1995 it was thus only possible to import red wine. This rule has
been softened and white wine imports have been allowed since 1996. Since
2001, accompanied by the adoption of the General Agreement on Tariffs and
Trade (GATT)/World Trade Organization (WTO) rules of the Uruguay
round, Switzerland merged the quotas on red and white wines to obtain a
general quota on wine imports of 170 million liters a year. Over the past few
years this quota has more or less been completely exhausted with imports
oscillating between 152 and 168 million liters (Bundesrat 2012). This historic
rule may explain how, until this day, 70% of red wine consumption consists
Association suisse du commerce du vin.

8
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of foreign wines, while 60% of white wine consumption emanates from

domestic production (Swiss Wine Promotion 2014). These rather low trade
barriers have been further facilitated with the signing of bilateral agreements
with the European Union, making wine imports attractive and relatively easy
for foreign producers. The different agreements have also maintained taxes
and import duties at a low level, which is coupled with a low value-added tax
(VAT) of 8%.
Due to their relatively high income and wealth, the Swiss population is will-
ing to spend more money on wine than people in other countries are. For exam-
ple, the average price of a bottle bought in Switzerland lies at 7.95 Swiss Francs
(CHF)9 (Observatoire des vins en grande distribution en Suisse 2015), while in
France it stands at 3.80 CHF (€3.17) (FranceAgriMer 2012). Switzerland thus
constitutes an attractive market for foreign wine producers as pricier products
can be sold more easily. This is coupled with a historically and culturally strong
interest for wine in Switzerland. Consumers are willing to inform themselves
before buying wine and take the visibility and notoriety of foreign wine produc-
ers into account in their purchase decision. Wine knowledge is therefore rather
high and reinforced by travel to neighboring wine regions.
As a consequence, there are a large number of wine shops catering to this
strong demand for foreign wines. This competition among wine shops puts
price pressure on foreign wines and has led to a situation in which some of the
most prestigious foreign wines can be obtained more easily and cheaper than
in their home countries. Furthermore, the proximity to some of the best wine
regions in the world renders the direct sourcing and importations from
domains easy. In recent years, the strong appreciation of the Swiss franc with
respect to the euro has further reinforced the attractiveness and good value of
foreign wines. This constellation creates price pressure on Swiss producers due
to the low production costs in foreign markets and the relatively easy and
cheap possibility for these to import to Switzerland.
27.3.2 S
pecificities of the Market for Local Wines
in Switzerland
According to the Swiss Wine Promotion (2014), Switzerland has around

4000 professional winemakers who, on average, cultivate wine on a surface of
1.5–10 ha and produce around 20,000–50,000 bottles per vintage. This
This number probably underestimates the true average price as it is solely based on prices from super-
9
markets which tend to sell at cheaper prices.
mmorag@uchile.cl
a verage hides a contrasting reality: while most wine estates can be considered
as rather small, it is a few larger wineries that retain a substantial market share.
For instance, the Provins cooperative accounts for close to one fourth of the
overall production in Valais (Emery 2001).
The market structure appears to be adapted to the specificities of Swiss
wines. The primary market is relatively homogenous with most small produc-
ers selling the majority of their wines directly to consumers. More popular,
smaller-quantity wines are predominantly sold directly to consumers through
a reservation system which is similar in spirit to the allocation system in
Burgundy. This leads to a situation in which customers remain loyal to wine-
makers. This phenomenon is further enforced by producers who reward loy-
alty in various ways (e.g. by increasing allocations on specific wines or outright
refusing to give the most sought-after wines to customers just ordering these).
Larger producers tend to sell a major part of their harvest through supermar-
kets or specialized wine shops. The distribution is, however, more complex as
larger producers tend to cover the full spectrum of quality levels. They sell
entry-level wines through dedicated brands via hard discounters or supermar-
kets and turn toward a more direct distribution to consumers for high-end
wines (Thomas 2014). On the secondary market, Swiss wines are nearly non-
existent as in general wines are bought to drink and not to sell at a later
period.
Another important attribute of Swiss wines is related to its price. As men-
tioned, Swiss wine is perceived as expensive. This can mostly be attributed to
high production costs and more specifically high labor costs. With minimum
wages starting at around 20 CHF per hour, it is very difficult to produce
cheap wine. This high labor cost is accompanied by legal and geographical
constraints of the vineyards. Due to complex succession laws, parcels are
divided and thus remain very small. Moreover, parcels may often be quite
dispersed and build on hillsides as terraces. This leads to a loss of time when
moving from one parcel to another and makes the use of mechanical equip-
ment nearly impossible. The repair and construction of stone walls needed to
maintain the soils on hillsides further increases costs. According to Emery
(2001), this leads to a production cost of 35,000–55,000 CHF per hectare.
The high purchase power of customers, however, allows vintners to sell their
wines at prices which more or less cover their costs. According to a recent
survey, a majority of customers are ready to spend on average 10–20 CHF for
a bottle of wine (M.I.S. Trend 2013). Interestingly, this amount is quite simi-
lar to the average price at which Swiss producers sell their wines and corre-
sponds to a classic pricing strategy in a competitive market in which marginal
costs are relatively equal to selling prices.
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Even though prices have largely remained stable in nominal terms and
cover production costs, their positioning compared to foreign wines has var-
ied substantially over the last five years. The 40% appreciation of the Swiss
franc toward the euro has made local wines look relatively more expensive
when compared to foreign wines. At the same time, prices from nearby wine-
producing regions (Burgundy, Piedmont, Rhône and Bordeaux) have strongly
increased over the last decade. These two phenomena result in a market struc-
ture in which Swiss entry-level wines look extremely expensive when com-
pared to their foreign counterparts. On the other hand, prices of the best
Swiss wines have become increasingly attractive to customers as they offer
good quality at a very competitive price when compared to good French or
Italian wines. Thus “as Swiss wineries are less competitive compared to foreign
ones with respect to price levels and topographical conditions, they are forced
by the market to differentiate themselves by creating better value for custom-
ers” (Fueglistaller et al. 2014). This focus and evolution from quantity to
quality allows Swiss wines to enjoy a relatively good level of notoriety within
the country. In fact, only French and Italian wines are better known than local
ones by Swiss wine consumers (M.I.S. Trend 2013). In general, Swiss custom-
ers have a good opinion of “their” wines, with only 5% of people thinking
that foreign wines are of better quality, while 46% strongly disagree with this
statement (M.I.S. Trend 2013).
27.4 B
usiness Models in Switzerland and Their
Respective Performance
The business model applied by Swiss wineries is to a large extent influenced by
two constraints. On the one hand, the historical and geographical context
implies that most wine estates are forced to be of small size. On the other
hand, the strong presence of foreign wines on the market puts pressure on
wine producers and influences their strategies. Generally, two business models
are encountered in Switzerland: small/family wineries which sell most of their
production directly to final consumers and cooperatives/larger wineries which
sell to final consumers mainly through supermarkets and specialty shops. In
the following paragraphs, we present four small examples illustrating different
cases which are representative of the Swiss wine business.
Denis Mercier Since 1982, Denis Mercier has cultivated 7.2 ha situated

mainly around the town of Sierre (Valais) and produces on average around
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40,000 bottles per vintage (Mémoire des Vins Suisses 2015b). He has special-
ized in varieties that are typical for his region and has achieved a considerable
reputation for his Cornalin. He has been following a traditional approach to
wine-making and reaches for the highest quality standards. His wife takes care
of the distribution and welcomes clients picking up their wines at the winery,
which is the norm. The couple is now helped by their daughter and employs
additional personnel for the harvest only. Most clients go to the winery to
collect their wine order and take the opportunity to have a discussion with
one of the three family members to learn more about the wines they purchase
and wine-making in general. Due to his reputation and small-scale produc-
tion, about half of the ten varieties Denis Mercier has on offer are available in
limited quantities only. Prices have somewhat increased with inflation through
time but remain at a very reasonable level considering the quality and work
put into its production. This approach is representative of many small, suc-
cessful Swiss wineries. Family businesses with a direct distribution channel
and warm welcome, rather stable prices through time and a limitation of
quantities, ensure that loyal customers receive at least one bottle of their
desired wine.
Domaine Louis Bovard Louis-Philippe Bovard took over the family domain
in 10th generation in 1983. He cultivates 16 ha and produces around 180,000
bottles annually (Mémoire des Vins Suisses 2015c). His wines are distributed
either directly to visiting consumers or through specialty shops throughout
Switzerland. This is possible due to the segmentation of his wine range which
goes from cheaper entry-level wines to more expensive and prestigious cuvées.
His winery is located in the middle of the Lavaux (Vaud), which is now a
UNESCO World Heritage site and famous for its Chasselas cultivated on
ancient stone terraces. Mr. Bovard is known for his curiosity and innovative
spirit. This has led him to try out different international varieties next to the
classic Chasselas and Pinot Noir grapes of the region. He can build on his
ownership of one of the best known appellations of Switzerland (Dézaley
Grand Cru) which grants him immediate recognition on the Swiss market.
He, furthermore, was mentioned favorably after a recent visit by Stephan
Reinhardt of TWA which granted him visibility at home and abroad (Moginier
2015). Even before this recent acclaim and for the last 15 years, Mr. Bovard
has exported some of his wines, following the trend set by German and
Austrian wineries. He also took part in recent trips to Japan to reinforce his
position there, hoping to sell at least 5000 bottles on this market (Buss 2013).
This example illustrates a willingness to increase exports through more
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international visibility built on a strong domestic presence for wineries with a

medium-sized annual production. This is reinforced by the creation of differ-
ent product lines to play on price discrimination. In many respects, Mr.
Bovard incorporates the direction Swiss wineries aim to pursue in the future.
Provins Provins has been the cooperative of the Valais region since 1930. Its
4400 members cultivate around 1100 ha and produce 13–15 million bottles
a year, which corresponds to 23% of the harvest in Valais or 10% of the har-
vest in Switzerland as a whole (Mémoire des Vins Suisses 2015a). Their mem-
bers are compensated per square meter, not kilo, to encourage cooperators to
strive for quality versus quantity. A priori, it may seem as if such a large com-
pany may not be able to produce high-quality wines; however, quite the
opposite is true. Provins has decided to strongly segment their market and
diversify into different lines according to quality and customer. They intro-
duced an entry-level line of wines in supermarkets and for hard discounters at
affordable prices. They further created a “Maitre de Chais” line of wines which
are labeled as premium wines and consist only of the best grapes of excep-
tional parcels. These wines can also be found in supermarkets, specialty shops
and Provins shops and go for about 75% more than the entry-level line.
Finally, it distributes a “Crus des Domaines” line which fetches double the
price of the “Maitre de Chais” line and aims to compete with the world’s top
wines (Provins 2015). In 2014, Provins introduced an iconic wine, named
“Electus” (sold at 190 CHF), to compete with the best wines in the world. In
a tasting by Jancis Robinson in 2014, it reached a good position when opposed
to very good wines from France and Italy (Guertchakoff 2014). This consti-
tutes one of the first attempts at competing at a high price and quality level
with neighboring wine-growing regions. The election of Provins as winemaker
of the year 2013 and of its oenologist Miss Gay in 2008 further shows the
commitment to follow, even as a cooperative, a qualitative path.
Obrist Obrist has taken a different form of expansion and service. This com-
pany started as a wine merchant in Vevey (Vaud) in 1854 but soon under-
stood that having its own vineyards could be beneficial. It therefore started
buying some up in 1896. Since the 1960s, it collaborates with a winery in
Valais to be able to source wines from that region and sell them in their shops.
Nowadays, Obrist is one of the largest wine merchants and producers in
Switzerland with parcels ranging from Lavaux to Valais and covering a total of
55 ha. It sells its wines to restaurants, through specialty shops, its own shops
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and directly to individuals (Obrist 2015). This more diversified approach of

doing business is followed by some Swiss producers. A few, such as Obrist, try
to create a value chain from production to distribution while also diversifying
in the sale of other domestic or foreign wines. Others have expanded abroad
(e.g. Georg Fromm to New Zealand) or have opened a smaller-scale wine bar
or restaurant (e.g. Weingut Bad Osterfingen).
27.5 Conclusion
The wine market in Switzerland is saturated. Local winemakers face several
internal constraints (conditions and costs of production) and external chal-
lenges (proximity to the world’s most reputed wine-growing areas, strong
competition from foreign wines). Consequently Swiss winemakers have no
choice but to focus on quality and rely on a differentiation strategy. There is
no place for mediocrity and no excuse for producing wines of bad quality. In
this context, small wineries seem well armed. But it is crucial for Swiss wines
to improve on their visibility and notoriety, not only to reach foreign markets
but also to remain successful on their own local market. The following eight
points summarize this situation:
1. A saturated market: In general and as noted by Fueglistaller et al. (2014)

“The Swiss wine market […] can be characterised as a saturated market
which is comparable to a zero-sum game where additional gains of one
market participant can only be realised to the detriment of another”. Thus,
wining market share is only possible on the back of other producers or
foreign wines. To be able to compete with foreign wines, a differentiation
or pricing approach can be pursued (see Catry 2009).
2. Quality over quantity: Over the last 20 years, most wine producers have
opted to switch from quantity to quality and revert back to traditionalism.
This hints at the fact that a product differentiation approach yields better
results than aggressive pricing campaigns when producers face high pro-
duction costs. The success of the most qualitative producers has driven
more and more producers to pursue this direction.
3. Niche products: In line with a product differentiation strategy, winemak-
ers have been planting indigenous grape varieties on an increasing surface
area. As it is difficult to compete with foreign wine producers and their
international varieties, this allows Swiss producers to reduce competition
and propose a niche product which may also bear fruit in a future interna-
tionalization strategy. Both the higher-quality perception of these specialties
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and the difficulty in growing some of them (e.g. such as Cornalin) justify
higher prices.
4. Small is beautiful: Concentrating on small wineries is a direct response to
growth problems which emanate from two distinct sources. First, high
labor costs impede growth. Up to a certain size, the reliance on cheap (or
free) labor from family members allows winemakers to reduce costs. Many
have understood that growing larger and having to employ one or two
workers may lead to financial difficulties. Second, the difficult succession
laws and high land costs render the purchase of additional parcels compli-
cated. It therefore appears that having small family wineries is the most
efficient way to contain costs.
5. No place for mediocrity: Many producers are having a difficult time since
the Swiss franc surged against the euro. As a consequence, in 2012, the
Swiss Parliament decided to declassify ten million liters of AOC wines to
simple table wines (Herminjard 2013). These difficult times have further
been reinforced by a drop in alcohol consumption on the national market.
As prices of Swiss wines are relatively inelastic due to costs and the desire
to keep loyal customers, a response to these two phenomena has been dif-
ficult. It thus appears that wines of lesser quality or which do not have a
distinctive positioning have difficulties being sold.
6. No excuse for bad quality: The geographical and geological particularities
of Switzerland offer good to excellent conditions for wine growing. Like
some of its closest neighbors (Burgundy and Alsace in France, Mosel and
Nahe in Germany), Switzerland used to have a relatively cold climate. This
made it difficult to ensure a good and qualitatively homogeneous crop
from one vintage to another. Global warming has changed this situation
and has transformed a former weakness into strength. Since the mid-
1990s, very few years have suffered from bad weather, while a number of
vintages have benefited from outstanding conditions (1995, 2000, 2005,
2009, 2010, 2013 in some parts of the country, 2015).
7. Visibility and notoriety: The difficulty in sourcing many wines has led to
a lack of visibility as many are very difficult to obtain or taste. This low
visibility is reinforced by a variety of factors. A unique and clear AOC
system is yet to be developed. Moreover, there is currently a quasi-absence
of wine experts on the market. Hopefully, the situation has started to
change. Vaud and Valais, the two leading cantons in terms of quantity
produced, are now working on classification systems. The recent advent of
expert wine tastings and winery rankings shows that Swiss wines have
evolved qualitatively and are now in a comparable position to good-quality
foreign wines. Especially the favorable mention of the Chasselas grape and
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several producers in Robert Parker’s Wine Advocate (TWA) has increased

awareness of Swiss wines at home and abroad.10
8 . Exports: An increase in notoriety and visibility should facilitate the export
of Swiss wines. It has become a necessity to grow abroad in order to diver-
sify output and reduce complete reliance on the home market for some
producers. As in other Swiss industries, the choice to go for niche products
and varieties is the best.
Overall, it appears that the idea of producing and consuming locally has
worked for Swiss winemakers. However, the positive developments thus far
should continue to evolve in the future for producers to remain competitive
and profitable.
References
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28
Conclusion: What’s Next?
and Alessandro Corsi
This book offered a broad overview of the different business models in the
wine industry worldwide. It showed the diversity of this highly fragmented
and extremely diverse sector. Above all, the different chapters showed that
there is no dominant model and no guarantee of success at national scale in
whatever we are talking about Old, New or New World wine countries. In
particular, this book refutes the idea, however widespread in the Old World,
that the model of the large, vertically integrated industries relying on one or
more strong brands sold internationally would be the unique way for success
in wine-producing countries. Different models coexist at national and inter-
national levels and they are constantly evolving according to the challenges
they already face. Many chapters showed that the actors operating in the wine
industries as the wine industries themselves already adapt their strategies.
Whether the actors within a particular industry or the wine industries grouped
J.-M. Cardebat
A. Corsi

https://doi.org/10.1007/978-3-319-98633-3_28
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in national or international institutions, all players, in order to compete and

perform on the wine market, use different tools to differentiate (mergers, ver-
tical integration, clustering, designation of origin, brands, combination of
origin and branding, etc.). At a micro level, the observation is similar. Grands
Crus in the Old World or large and vertically brand companies in the New
World are far from being the only destinies for a wine estate to exist. Reality
is more complex. The importance of localization, proximity with consumers,
the existence of a community sharing strong societal values and new forms of
financing or sales, in connection with the evolution of the sociology of the
consumer, are all factors that can allow small estates and wineries to achieve
success. It is even possible that the latter are more resilient to the changes that
will probably be imposed on the wine industry in the next decade.
We identify four mutations that could reshuffle the cards in the global hier-
archy of wine-producing countries in the coming years. They are as many
challenges as these countries, industries and companies in the sector will have
to face in the future. They concern:
–– the production of grapes and wine, in a context of climate change for most
of the major producing countries;
–– international wine trade, against the backdrop of possible trade wars and of
de-globalization;
–– the new geography and the new sociology of wine consumption that are
beginning to upset demand;
–– new ways to sell wine and communicate to reach the new consumers.
Thus, producing, exchanging, selling and consuming wine are likely to

evolve very significantly in the next 10–15 years. These developments could
be at the origin of an upheaval in the hierarchy of wine-producing and export-
ing countries. What could the world of wine and the wine industries world-
wide look like by 2030 according to the expected changes? Rather than
providing uncertain predictions, we will try to identify the most important
trends that may affect the future of the wine industry.
28.1 Climate Change

A first important determinant of changes is the environmental context of the
current wine production that is changing due to shifts in climate patterns
already observed for the past and predicted for the future. These changes in
temperature and air humidity are already modifying different elements as grape
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Conclusion: What’s Next? 525
characteristics (sugar, acidity). The production challenges and the s trategies to

ensure a sustainable product need to be adapted accordingly (Schultz 2016).
Wine production could therefore evolve along two directions.
–– First, the reduction of wine supply in certain regions facing climate change.
In the latter case, the Old World (mainly France, Italy and Spain), the other
countries of Southern Europe, but also Australia, Argentina, South Africa or
California (United States) could appear as the future big losers of global
warming. In addition to global warming, the European countries are particu-
larly subject to extreme events such as late frost or hail storm as shown in
particular by the 2017 vintage in the Bordeaux wine region. The evolution of
viticultural techniques can limit these negative evolutions, for example,
through the emergence of resistant grape varieties to water stress to reduce the
impact of the high temperatures but also to diseases as powdery and downy
mildew. The costs of these techniques, together with the needed organiza-
tional changes, the risk aversion of the winegrowers and their willingness to
change, could then be decisive. As to the consequences of climate change in
traditionally producing areas, a possible adaptation is the change in the vari-
ety mix. Grape varieties traditionally produced in each area of the Old World
are the result of a secular selection of the best fit to the particular local natural
(soil and weather) conditions. There is a wide dispersion in the optimal
weather conditions for the different varieties (Ashenfelter and Storchmann
2016); hence, a rational adaptation strategy could be changing the varieties
choosing the best fit to the new conditions. Nevertheless, such a path does not
go without difficulties. Apart from the needed investments, the main prob-
lems could arise from two sides. One is the difficulty in changing the institu-
tional setting of the regulations concerning appellation wines. For instance, in
Italy and France, many Protected Designation of Origin (PDO) regulations
dictate the varieties that can be used or not according to the area and the type
of wine. Even though regulations can obviously be changed, some producers
may be reluctant to do so, and conflicts on this issue can arise within the com-
munity. A second problem might be the consumers’ acceptance of a change
in taste of traditional wines and, more generally, in the characteristics they
associate with those particular wines. Nevertheless, also consumers’ tastes and
preferences may change, either because of the different availability of wines or
because of simply following new fashion trends. The changing preferences of
English consumers for different wines across time (Ludington 2018) are an
example of such a change. The evolution of wine production since the 1960s
in the Bordeaux wine region from white to red following the evolution of
consumers’ taste is a second one.
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–– Second, the exploration of new terroirs in non-producing regions at the

moment, reinforced by the evolution of viticultural techniques. Vine grow-
ing in tropical or semitropical areas, as in India or in certain areas of China
or Brazil, is expected to grow. The growth of wine consumption in Asian
countries is such that these terroirs will receive strong incentives to develop
either from local companies or from foreign investors. Climate change is
likely to have a positive impact on some parts of Northern Europe. England
is increasingly considered as a terroir with a high potential for wine mak-
ing. It is therefore already possible to observe pioneers planting vines in
England. Germany or even the Scandinavian countries could also see their
wine production—already important in Germany—increase. Canada or
the North of the United States could follow the same evolution.
The economic impact of these changes is difficult to assess but has to be

considered. An in-depth analysis is necessary to build relevant scenarios and
to provide risk analysis for individual regions and to quantify the costs and/or
benefits of regional climate developments. It is nevertheless clear that climate
change and technical developments associated with it will disrupt the map-
ping of global wine production. New challengers will certainly emerge. China
is one of the favorites because this country has already begun to move on
toward a large-scale wine production and already proclaims itself an impor-
tant wine-producing country. This change in production mapping should also
be reinforced by the upcoming difficulties in international wine trade.
28.2 International Wine Trade

and De-globalization
The hardening trade war between the United States, China and Europe in
the wine market presumably foreshadows a new world order in which inter-
national trade will be much more limited. What we can call a form of de-
globalization begun with the slowdown in trade flows since the 2009
economic crisis and the rise of socio-environmental concerns related to glo-
balization. The wine sector will not escape this trend. By the symbolic nature
of wine, because it is attached to regions and therefore to countries, of which
it often bears the name, wine appears as an ideal good to overtax in the con-
text of a commercial war. In the past, it has already been the target of this
type of practice (especially French wines during the second Iraq War). It is all
the easier to hit the wine as it is an alcoholic beverage and therefore carries
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negative societal externalities. Non-tariff measures, including health mea-

sures, therefore appear to be obvious instruments of protectionism. Here we
underline once again the importance of regulations and public interventions
on the setting of the wine industries.
We can expect the protectionism to favor, by nature, local consumption
and domestic markets. The incentive to produce and consume locally is
becoming stronger and stronger. The large, export-oriented firms are presum-
ably the more exposed ones, in particular those which export wines with low
unit value. This could be reinforced by the rise of local consumption relative
to oenotourism (with the mapping of new wine routes and the opening of the
estates for visits and wine tastings, e.g. in the Old producing countries such as
France and Italy). Successful business models of local and short distribution
channels for wine sales have already and successfully been developed for sev-
eral years by the Grands Crus, models that could also be adopted by smaller
estates.
The restriction of trade should therefore favor the emergence of new vine-
yards and a fragmentation of world production. In this, it is linked to the
climatic evolution which will impact the world production. It should also
encourage more local consumption and ultimately new forms of sales. The
way to sell the wine could change significantly in the years to come. In a world
where the “local” food concept is gaining importance and tells a story about
the product, where the distance becomes expensive, it will be necessary to
retain a more local clientele. Many vineyards are already aware of that. But for
the most famous brands and for the most spread in the world, the local mar-
ket is not enough. The extent to which production and consumption will shift
to local wines is nevertheless constrained by natural conditions and by con-
sumers’ habits. While global warming, for instance, favors wine production in
the United Kingdom, its production is undoubtedly insufficient to meet the
present British demand for wine, and it will presumably also be in the future,
unless deep changes in consumption habits occur.
28.3 Changes in Wine Consumption

Reactions at the global scale to the changes induced by global warming are
also possible through changes in consumption habits and, hence, in the
demand for wine. Nevertheless, they are only possible in the long run.
Copying with these trends would imply an increase in wine consumption in
Traditional producing countries and a decrease in New consuming coun-
tries. This contrasts with the trend toward converging drinking habits
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between different beverages (Holmes and Anderson 2017) and would require
a huge change in many countries’ marketing outlets. Just to give an example,
the share of exports over the Italian production, which was around 5 percent
in 1950, is now around 50 percent (Corsi et al. 2018). A strong reconversion
toward domestic consumption is hardly conceivable. But an increase in the
competitive pressure in the international markets is easily predictable,
because most of the changes induced by the changing trade flows will pre-
sumably take the form of trade-diversion effects rather than of a direct sub-
stitution of domestic production for imports.
At micro level, these trends could have different impacts on the different
operators of the chains, depending on the structure of the wine sector in each
country and on the strength of the changes they could have to face. The dis-
tribution of the gains and of the losses from climate change as well as from
trade shrinking will be linked to the organization of the industrial chain and
on the market power of the operators. The more concentrated the wine pro-
cessing, the more it has some market power vis-à-vis the pure grape growers
and hence the possibility to pass the negative effects to them. This is neverthe-
less less obvious when wine cooperatives are important players in the wine
processing. Wine estates producing grapes and wine are more common in the
Old wine countries and on the higher-quality segment. As such, they will suf-
fer more the consequences of climate change (that will affect quality) and less
those of the trade reduction, as compared to the other operators (because of
the lower price elasticity of these wines).
28.4 Distribution and Relation to the Consumers

Two further main issues seem central trying to forecast the future of wine
sales. The first concerns the use of the Internet in the relationship with the end
customer and the second questions the relevance of traditional distribution
channels. These two issues are closely linked. The Internet allows easy direct
sales and thus doing without traditional intermediaries. Having a commercial
website is however far from enough to organize a direct sale commercializa-
tion system. The estates would have to be able in the future to create a “com-
munity” around their name, their brand. Crowdfunding as an innovative
financial tool constitutes an interesting vector for building a community of
customers actively participating in the life of the property (Bargain et al.
2018). More and more vineyards are using it to finance new equipment or
new plantings or even the development of a new product or marketing strat-
egy. A refund of the funds poured in the context of a crowdfunding campaign
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in the form of bottles of wine is both a new way of financing and, perhaps
above all, a new form of selling (eventually, since it is the bottles of future
vintages that are sold). It is a way to bring new consumers to the product of a
specific estate. In addition, we look at community management as being able
to become an essential communication tool for building such a community of
customers, even more than other forms of communication. It is in this con-
text that we can imagine a gradual decline in the number of sales via conven-
tional distribution channels compared to direct sales, interrogating once again
the organization of the wine industries and the relative power that some actors
have. The rise of an expanded wine tourism offer will also go into this
direction.
These types of sales closer to the consumer (direct sales) should be in line
with the evolution of sociology of wine consumers. From a rather old,
European, masculine, not interested in social medias and high-income con-
sumer, the typical wine consumer is becoming (and it will be even more true
tomorrow) younger, international (American and Asian in particular), more
feminine and more connected (Cardebat 2017). Once again, it appears that
social networks and the exchange of information between consumers on the
Internet concerning the quality of wines are likely to become increasingly
important. The notion of community will be all the more affirmed, giving
more importance to the new opinion-makers such as “the wine community”
and the other consumers, much more than the traditional opinion-makers
like newspapers, guides or famous experts. The notion of community does not
necessarily refer to purely local customers in geographic terms but to custom-
ers sharing common values that wine conveys (typical characteristics, societal
and environmental commitments, for landscape preservation or social pur-
poses, etc.). Of course, these trends are not at the same stage everywhere in the
world, much depending on the tradition of drinking wine and on the country
status according to wine production, since the tradition of drinking local
wines is deeply rooted in Old wine countries and can help in facilitating the
creation of wine communities. Though, customers can now be everywhere in
the world, even if a rise in the obstacles to exports can be anticipated. We are
not describing here the end of exports, but an evolution in the way of doing
business at the international level. If exports become more costly, operators
will have to think about how to reach foreign consumers, especially new con-
sumers from New wine countries. Two strategies emerge. The first one is
related to product differentiation: building a strong brand and creating a
strong community that will make consumers willing to pay more for a p roduct
that represents a strong added value for them. The second strategy is about the
“tariff jumping”. If there are barriers to trade, then the players must produce
mmorag@uchile.cl
closer to consumers, as Japanese car companies did in the United States in the
1980s. Absurd as it may seem to some experts for which a wine is attached to
a terroir, this strategy can pay off for generic wines, produced by leading
brands used to using grapes from different terroirs to produce their wines.
This model will be similar to that of the big brewers who produce their beer
locally in the United States, for example (local and craft breweries). We can
therefore anticipate a future growth of foreign direct investments in the wine
sector: greenfield investments, corresponding to the purchase of land and the
pure creation of a new vineyard, but also brownfield investments when brands
buy existing vineyards or create alliances with local brands.
It is therefore self-evident that many variables will affect the future evolu-
tion of the wine industry worldwide, so that an exercise of prediction of the
potential future directions of the wine industry is inherently imperfect and
partial and potentially totally wrong. This is the risk of such an exercise. But
our effort has been to present the most likely evolutions and some hints on
the interplay among the different actors of the industry and to offer a perspec-
tive in terms of breaks of tendency rather than of a plain extension of past
trends. The wine industry is very likely to know several breaks of tendency in
the next 10–15 years and the actors of the industry will need to make strategic
choices.
References
Ashenfelter, O., and K. Storchmann. 2016. The economics of wine, weather, and
climate change. Review of Environmental Economics and Policy 10 (1): 25–46.
Bargain, O., J.M. Cardebat, and A. Vignolles. 2018. Crowdfunding in the wine
industry. Journal of Wine Economics 13 (1): 57–82.
Cardebat, J.M. 2017. Économie du vin. Paris: La Découverte.
Corsi, A., E. Pomarici, and R. Sardone. 2018. Italy post 1938. In Wine globalization.
A new comparative history, ed. K. Anderson and V. Pinilla, 153–177. Cambridge:
Cambridge University Press.
Holmes, J., and K. Anderson. 2017. Convergence in national alcohol consumption
patterns: New global indicators. Journal of Wine Economics 12 (2): 117–148.
Ludington, C.C. 2018. United Kingdom. In Wine globalization. A new comparative
history, ed. K. Anderson and V. Pinilla, 239–271. Cambridge: Cambridge
University Press.
Schultz, H.R. 2016. Global climate change, sustainability, and some challenges for
grape and wine production. Journal of Wine Economics 11: 181–200.
mmorag@uchile.cl
Index1
A China, 369
Acquisition, 140, 211, 342, 349, 376, France, 19, 24–27, 29–33, 39, 43,
386, 439–441, 443–447, 450, 44, 343, 369, 465, 468, 473,
490, 497 479, 480, 511, 520
Agreement, 10, 59, 72, 97, 126, 150, Italy, 343, 468
153, 164, 188, 204, 250–263, South Africa, 343
266, 279, 280, 282, 283n15, Spain, 43, 468
287, 288, 293, 299–301, 302n5, United States (US), 343, 369, 477,
303, 304n6, 306–310, 312, 366, 480
429, 439, 489, 491, 496, Area, 18, 20–22, 24–26, 27n3, 28, 43,
498–500, 514 47–52, 54, 54n3, 56, 57, 62, 64,
Alliance, 35, 141, 260n11, 342, 348, 66–68, 72, 75, 78–81, 84, 86,
351, 352, 356, 361, 497–499, 87, 89, 99–101, 106, 106n1,
530 108, 110, 111, 117, 123,
AOP 132–136, 141–147, 156–163,
Australia, 45 165, 167, 171, 178, 179, 183,
Chile, 45 186, 190, 196, 197, 212, 213,
France, 43, 44 215, 216, 218, 220, 225, 227,
Spain, 43 230, 232, 258, 266n1, 267, 272,
United States (US), 43, 45 272n8, 278, 279, 282, 285, 291,
Appellation d’origine controlee (AOC) 297, 304, 309–311, 320, 335,
Argentina, 477 339, 346–348, 350, 358, 371,
Australia, 343 389–391, 391n1, 392n2,
Chile, 343, 477 393–396, 399–401, 406–408,
Note: Page numbers followed by ‘n’ refer to notes.

1

https://doi.org/10.1007/978-3-319-98633-3
mmorag@uchile.cl
532 Index
414, 421, 421n2, 423, 424, 440, 115–121, 126, 164, 169, 171,
446–448, 464, 467, 468, 468n4, 172, 179, 191, 196, 197, 238,
472, 474, 477, 492, 496, 509, 240, 301, 306, 347, 349, 372,
511, 519, 525, 526 376, 377, 384, 390–392, 395,
Argentina/Argentine 396, 405–408, 410–414, 418,
distribution, 174 428, 431, 445, 498, 499, 503,
domestic market, 155, 166, 169, 514, 515, 517
170, 173, 174, 176, 470 bottling, 4, 38, 48, 54n3, 55,
revenue, 9, 168, 170, 174 58–60, 70, 72, 193, 194, 233,
size, 163, 166 240, 279, 321, 368, 377, 384,
technology, 8, 157, 161, 163, 463, 394, 396, 399, 403, 408,
471 410–415, 422, 423, 425–428,
varieties, 156–163, 169, 471, 525 431, 432, 438
vine area, 163 Brand, 205
winemaking sector, 9, 169 Argentina, 6, 174, 463, 469
Australia/Australian Australia, 5–7, 140, 151, 386, 440,
emergence and cyclical growth, 443, 444, 463, 469, 470
132–136 branding, 12, 64, 323, 384, 403,
features in grape growing, 9, 408, 433, 476–478, 524
142–148, 469, 470 Chile, 5–7, 12, 178, 191, 193, 197,
future, 8, 132, 237 440, 456, 463, 464, 478
structure of the wine industry, China, 6, 90, 233
136–142 France, 5, 8, 38, 40, 365, 408, 440,
wine distribution and retailing, 443, 473, 479, 511
148–151 Italy, 56, 64, 68, 440, 442, 444, 464
South Africa, 6, 209, 219, 463
Spain, 90, 99
B United States (US), 5–7, 90, 117,
Barriers, 10, 236, 242, 246, 252, 282, 463, 477
259n9, 260, 262, 262n15, 266, Brexit, 308–310
280, 288, 291–312, 446–448, Broker, 29, 35, 37, 39, 41, 42, 189,
450, 500, 501, 508, 514, 529 243, 244, 369, 373, 374, 384,
tariff, 252, 292–294 430, 448, 488, 497
Bordeaux/Bordeaux wines, 8, 11, 26, Brownfield investments, 386, 443, 447,
28, 37–39, 42, 151, 212, 234, 530
235, 242, 245, 281, 324, Bulk/bulk wine, 4, 6, 12, 19, 23,
363–379, 405–408, 415–418, 36–38, 42, 58, 66–68, 70, 83,
447, 449, 466, 467, 467n3, 88, 89, 93, 94, 97, 99, 100, 108,
468n4, 472, 476, 480, 502, 511, 113, 115, 117, 119, 120, 126,
516, 525 145, 148, 149, 164, 166, 169,
Bottle/bottle of wine, 19, 36–39, 42, 178, 183, 193, 205, 216, 227,
45, 58, 59, 65, 67, 70, 88, 89, 233, 240, 245, 293, 294, 306,
93, 97, 100, 101, 112, 113, 333, 347, 374–377, 390,
mmorag@uchile.cl
Index 533
392–397, 399, 400, 405, 406, land tenure, 184–185

408, 410–415, 417, 418, 439, marketing, 5, 6, 151, 177, 190–197,
442, 444, 445, 496, 498, 500, 307, 478, 495
503, 504 varieties, 160, 161, 178–180, 184,
Burgundy/Burgundy wines, 5, 8, 11, 185, 192, 197, 489, 498, 504
12, 26, 42, 44, 145, 161, 212, wine co-operatives, 9
281, 385, 389–399, 447, 468, China/Chinese
472, 476, 511, 515, 516, 520 appellations–brands, 233–234, 276
Business model, 11, 113, 196, 241, distribution, 90, 236–244
245, 253, 324, 377, 385, 389, grape varieties, 229–232, 234, 236
390, 392–395, 397–399, 412, groups–wineries, 228, 232–235,
444, 460, 489, 507, 508, 242, 245, 336n21
516–519, 527 joint-ventures, 227, 229, 235–236
wine consumption–production,
225, 226, 244, 256
C wine regions, 232, 234, 240
Certification, 262, 262n15, 298–302, Classification, 49, 52, 230–231, 234,
302n5, 306, 425, 465, 468, 278–279, 295, 365, 370, 379,
473–475, 478–479 457, 464, 465, 469, 510–511,
organic, 30 520
Champagne, 19, 23, 24, 26, 27, 30, Climate change, 18, 152, 214, 218,
34, 35, 37, 42–44, 63n8, 236, 259, 492, 501, 503, 524–526,
281, 281n14, 322, 391, 405, 528
405n5, 433, 439–441, 447–449, Cluster, 5, 12, 45, 179, 377, 390,
466, 467n3, 468n4, 475, 477 392–396, 400–401, 487–504
Chile/Chilean Collective, 12, 43, 64, 72, 282, 286,
brand, 5–7, 178, 191–195, 440 310, 321, 358, 359, 367, 448,
consumer, 5, 183, 188, 192, 478 463–481, 488, 494, 500, 504
contracts, 189 Common Market Organization
costs and prices, 5, 183–184, 188, (CMO), 10, 18, 84, 249–251,
192, 233, 440, 444, 497, 498 265–267, 270–274, 276, 276n9,
cultivated area, 180, 181 277, 283, 283n15, 287, 446,
denomination of origin, 187, 478 447, 449
domestic market, 178, 192–195, Community management, 529
210, 495, 496 Company, 5, 11, 12, 28, 38, 39, 51,
export, 3, 5, 6, 45, 92, 178, 183, 55, 55n5, 60–63, 65, 67, 68, 74,
185, 187, 194, 196, 197, 259, 86–88, 90, 94, 95, 97, 122, 123,
307, 343, 444, 458, 459, 478, 136, 140–142, 162, 165–168,
487, 489, 493, 494, 497, 498, 170, 173–176, 178, 184–186,
500–503 189, 193–197, 202, 203,
industrial companies, 5, 13, 62, 178, 207–209, 211, 232, 233, 235,
181–190, 194, 195, 197, 386, 242, 244, 276, 282, 308, 310,
440, 444, 445, 501 321, 322, 342, 347, 348, 350,
mmorag@uchile.cl
534 Index
355, 357, 358, 360, 363, 375n8, 258, 259, 273, 277, 280, 294,
376–379, 377n9, 383–386, 390, 296, 310, 321, 328, 330n9, 344,
398, 399, 408, 409n10, 412, 409n6, 463n1, 467, 503, 507,
415, 431, 440, 442, 444, 445, 512–514, 520, 524, 526–528
448, 456, 476, 488, 497, 501, Contract, 23, 33, 42, 48, 59, 71–72,
518, 524, 526, 530 99, 112, 113, 132, 145, 188,
wine, 11, 12, 38, 61–63, 67, 86, 189, 269n3, 311, 320, 326, 331,
136, 141, 185, 194, 230, 235, 331n11, 332, 333n12, 335n18,
383–386, 398, 399, 440, 476, 336, 336n19, 368, 376, 384,
501 399, 429, 432, 434, 439, 440,
Competitiveness, 2, 4, 6, 10, 22, 44, 442, 466, 477
45, 94, 101, 151, 152, 169, 197, Co-operative
201, 214, 215, 218–219, 251, member, 12, 33, 34, 354, 355,
265–268, 273–274, 276 404–408, 409n7, 410–415, 417,
Concentration, 3, 9, 11, 26, 48, 59–63, 418
69, 86, 114, 139, 150, 163, 170, France/French, 348, 404, 406
185, 209, 210, 217, 232, 245, wine, 9, 11, 33–35, 41, 42, 44,
322, 323, 359, 361, 363, 370, 321–323, 339–361, 403–418,
375, 379, 379n11, 430–431, 437, 442
439, 488, 495–497, 504 Cost
Consumer/wine consumer, 2–5, 9, 22, opportunity, 272, 508
23, 35–37, 39, 41, 44, 58, 63, production, 5, 9, 27, 32, 36, 44, 65,
64, 67, 86, 89, 93, 94, 96, 169, 183, 184, 188, 205, 236,
99–102, 105, 106, 118, 240, 321, 386, 449, 508,
123–126, 150, 152, 155, 514–516, 519
160–162, 168, 169, 171, 172, transaction, 11, 323, 326–332,
175, 183, 188, 190–197, 225, 329n7, 335n16, 336, 337, 383,
232, 234, 241–245, 256, 257, 441, 497
261, 272, 273, 281, 282, 285, Crisis, 2, 18, 20, 21, 63, 85, 86, 90,
287, 292, 294, 296, 301–303, 92, 94, 95, 132, 171, 172, 268,
307–309, 312, 320, 344, 344n8, 269n3, 276n9, 277n10, 339,
345, 351n13, 364, 371, 379, 343–347, 349, 350, 366–368,
447, 464, 467, 468, 468n4, 470, 415, 447, 449, 466, 467, 526
473, 475–481, 479n9, 513–517, Crowdfunding, 528
524, 525, 527–530 Cybercommerce, 40–41
Consumption/wine consumption, 6,
18, 20–22, 39, 43–45, 54, 58,
66–68, 66n11, 70, 73, 74, 85, D
85n3, 86, 90–92, 94–98, 100, De-globalization, 524, 526–527
101, 106, 113–121, 124, 126, Demand, 11, 22, 44, 45, 94, 101, 116,
131, 132, 141, 148, 156, 162, 120, 126, 132, 133, 158, 161,
172, 174, 188, 193, 210, 219, 162, 164, 165, 168, 169, 179,
220, 225, 226, 236, 237, 256, 188, 191, 192, 251, 267, 268,
mmorag@uchile.cl
Index 535
271–273, 277, 287, 296, 297, 276, 278–280, 284–288, 293,

339, 345, 346, 349, 351n13, 294, 303, 304, 306–310, 321,
364, 367, 368, 371, 373, 375, 335n18, 336, 343, 368, 369,
377, 386, 429, 433, 448, 467, 386, 405, 421, 438, 439, 444,
470, 502, 504, 507, 510, 513, 446, 447, 449, 450, 464, 466,
514, 524, 527 469, 472, 475, 477, 496, 498,
Denomination of origin, 8, 25n2, 99, 500, 509, 511, 514, 525, 526
467, 473, 477–480 Exporter, 3, 10, 19, 43, 77, 93, 100,
Direct sale, 35–37, 39, 42, 67, 68, 95, 151, 153, 188, 242, 261, 292,
125, 368, 390, 428, 528, 529 296, 298, 302–305, 307, 444,
Distribution 457, 458, 496, 500
distribution chain, 9, 41, 170–175, Exports, 2, 18, 47, 77, 106, 131, 155,
243, 246 178, 201, 237, 252, 259, 268,
distribution channel/channel of 291, 343, 364, 385, 391, 400,
distribution, 18, 35–41, 48, 63, 429, 439, 457, 470, 487, 507, 527
67, 68, 94–96, 99, 100, 174,
183, 191, 226, 237, 241, 244,
321, 378, 379, 384, 405–407, F
441, 513, 517, 527–529 Farm size, 9, 48–52, 74, 81, 111, 201,
sale channel, 35, 67, 173–175, 407 216, 330, 369, 370
supply chain, 48, 55, 73, 100, 431 Firm, 9, 11, 12, 39, 45, 48, 55, 57–60,
62–65, 67, 68, 73–75, 82,
86–89, 95, 97, 99, 100, 106,
E 110–113, 117, 118, 123, 132,
Economics, 2, 21, 52, 84, 106, 152, 136, 139–141, 148, 156, 201,
162, 183, 202, 230, 255, 276, 210, 274, 280, 310, 311,
292, 320, 325, 341, 369, 405, 320–324, 329, 333, 334,
437, 456, 466, 489, 507, 526 334n15, 336, 375, 376, 377n10,
Estates, 8, 11, 12, 33, 38, 42, 44, 113, 378, 384, 390, 403, 404,
141, 163, 164, 205, 207, 212, 409–411, 414–418, 423n5,
213, 235, 242, 285, 365, 368, 425–429, 437–443, 446, 447,
370, 372, 373, 376, 384, 385, 449, 450, 464, 474, 478, 488,
389–401, 439, 440, 444, 489, 492, 494–497, 499, 501,
447–449, 467, 476, 515, 516, 503, 504, 527
524, 527–529 France/French
European regulation, 33 consumption, 21
Europe/European Union (EU), 10, 18, cybercommerce, 40, 41
21, 36, 39, 43, 45, 49, 52, 54n3, distribution channels, 36–39
56, 64, 73, 90, 139, 140, 142, export, 19, 20
145, 147, 149–152, 178, 201, import, 18–20
202, 212, 227, 249–251, 253, mass distribution, 40, 391
254, 256, 258, 260, 261, negociants, brokers, 29, 39, 41
265–267, 266n1, 269, 271–274, organic, 28, 29, 33, 36
mmorag@uchile.cl
536 Index
France/French (cont.) Grape grower, 27–29, 34, 52n2, 58,

PDO/PGI/AOC, 25 112, 120, 136, 189, 204, 205,
performance, 43, 404 208, 213, 217, 220, 363, 364,
production, 33, 344 368, 372, 375, 376, 379, 384,
varieties, 147, 197 414, 425, 426, 428, 429, 439,
wine co-operative, 11, 35 441, 442, 447–449, 528
winemaker, 228 grape producer, 111, 112, 205, 213,
wine regions, 23–24 215–216, 428, 502
yields, 43, 45, 391 Grape growing, 9, 11, 18, 22–31, 33,
34, 43, 48, 51, 52, 72, 73, 82,
88, 110, 112, 117, 142–148,
G 220, 261, 320, 321, 366, 438,
Geographic indication (GI), 19, 24, 39, 446, 469, 470, 499
54, 56, 69, 73, 100, 234, 254, Greece, 7, 17
282, 308–310, 448, 463, 465, Greenfield investment, 386, 443–446,
471–476 497, 530
Argentina, 279, 280, 307–309
Australia, 279, 280, 304, 307, 476
Chile, 279, 280, 304 H
China, 228, 233, 234, 279, 280, History, 8, 10, 17, 18, 24, 63, 78, 201,
304 207, 228, 231, 236, 283, 285,
France, 39, 279, 280, 465 287, 341, 348, 364, 463,
South Africa, 279, 280, 309 465–471, 474, 475, 508–510
Spain, 279, 280, 286 Hypermarkets, 35, 37, 39–41, 96, 237
United States (US), 279, 280, 282,
304
Germany, 3, 6, 7, 17, 19, 21, 36, 100, I
124, 147, 219, 296, 308, 369, Importer, 3, 19, 23, 39, 44, 68, 105,
384, 441, 459, 507, 511, 520, 114, 119–123, 171, 241–244,
526 246, 297, 309, 321, 391, 442,
Globalization, 2, 6–9, 145, 148, 163, 488
253, 254, 262, 308–309, 342, Imports, 3, 10, 66, 68, 106, 113, 117,
343, 361, 526 119–121, 142, 148, 151, 171,
Grands Crus, 8, 39, 44, 365, 373, 374, 210, 225, 233, 243–245, 243n3,
378, 385, 394–396, 399, 524, 252, 273, 292–296, 298,
527 302–304, 306, 307, 307n7,
France, 8, 39, 44, 378, 399 309–311, 334n15, 366, 441,
Grape, 7, 22, 48, 78, 106, 131, 156, 508, 510, 513, 514, 528
177, 225, 255, 269, 301, 320, Industry
326, 344, 366, 384, 389, 405, industrial organization, 8–11, 13,
422, 438, 466, 488, 511, 524 22, 132, 181–190
mmorag@uchile.cl
Index 537
structure, 152, 226, 244, 326, 386, relationships along the chain, 68–73
421–434 supply, 52, 60, 67, 68, 70, 433
Innovation, 5, 18, 44, 45, 73, 94, 163, wine production organization,
177–181, 183, 185, 197, 226, 55–60
240, 254, 266n1, 274, 276, 277,
330, 335, 344, 351, 351n13,
470, 489–494, 496, 498, 501, L
504 Land tenure
Institution, 10, 11, 208, 217, 250, 251, Italy, 51
253–255, 324, 368, 369, 371, Spain, 81
488, 489, 493, 494, 524 Local
International consumer, 58, 516
market, 4, 18, 22, 72, 85, 86, consumption, 527
89–92, 100–102, 156–158, 173,
176–178, 183, 193, 197, 253,
260, 311, 349, 371, 378, 471, M
487, 499, 500, 502, 503, 528 Market
trade, 4, 6, 7, 10, 12, 18, 43, 45, domestic, 45, 64, 90, 94–96, 121,
251, 258, 260, 266, 292, 294, 140, 150, 152, 153, 155, 156,
295, 299, 301, 307, 311n9, 312, 166, 169–176, 178, 193, 195,
456, 460, 526 197, 204, 205, 209, 212, 219,
wine firms, 438–446, 450 220, 265, 367, 390, 392, 423,
International Organisation of Vine and 428, 429, 470, 495, 496, 527
Wine (OIV), 10, 18–22, 21n1, local, 71, 86, 89, 90, 101, 183, 195,
77, 114, 225, 227, 234, 250, 507–521, 527
251, 253–259, 262, 263, 299, niche, 63, 166, 322, 379, 398, 408
299n2, 312, 344, 458–460 wine, 2, 4, 6–8, 10, 17, 21, 23, 26,
Investments, 2, 7, 11, 63, 78, 84, 38, 40, 43, 45, 70–72, 90, 121,
100–102, 132, 151, 152, 157, 124, 151, 155, 164, 170–173,
158, 161–164, 168, 170, 172, 225, 226, 235, 237, 238, 244,
176, 178, 183–185, 208, 220, 251–253, 262, 266, 269, 273,
227, 231, 235, 266n1, 274, 276, 280, 292, 299, 307, 309, 310,
276n9, 277, 280, 343, 359, 374, 312, 324, 342, 345, 351, 365,
404, 406, 413–415, 417, 418, 374, 377, 421–424, 428, 430,
441, 444, 445, 469–471, 478, 433, 449, 463n1, 464, 465, 473,
480, 493, 494, 496–500, 525 479–481, 501, 503, 507, 508,
Italy/Italian 512–513, 519, 524, 526
distribution, 48–52 Merchant, 11, 23, 35, 38, 40, 203,
farm size, 48–52 243, 244, 322–324, 364–370,
land tenure, 51 372–379, 384, 392, 466–468,
marketing, 17, 19, 58, 64, 72, 280 468n4, 476, 508, 518
mmorag@uchile.cl
538 Index
Merger, 11, 123, 140, 209, 322–324, 336n21, 346, 365, 367, 376,
340–361, 341n3, 341n4, 376, 399, 442, 456, 458–460,
386, 440, 443–447, 450, 490, 465–469, 471, 473–480, 524
496, 524 denomination of, 8, 24
Model, 7–13, 29, 40, 43, 48, 55, 75, Outsourcing, 12, 58, 383–386, 389,
82, 112, 122, 185, 214, 239, 390, 392, 395–397, 399, 438
240, 251, 254, 262, 266, 278,
278n11, 279, 326, 327, 339,
360, 377, 379, 406, 423–427, P
455–461, 463–465, 471, 472, Performance, 5, 6, 8–13, 41–44, 65,
476, 477, 480, 487, 492, 504, 84, 85, 185, 197, 220, 235, 254,
527, 530 307, 312, 320, 321, 323, 350,
357, 364, 369–372, 378, 384,
404, 408–418, 455–461, 487,
O 488, 491, 500–504, 508,
OECD, 492 516–519
Oenology, 257n7, 497 Planting rights, 272, 272n8, 287, 386,
Offer, 40, 43, 44, 78, 124, 125, 151, 438, 444, 446–450
164, 166, 189, 190, 234, 252, Plurilateral
280, 292, 305, 312, 371, 375, agreements, 10, 250, 253–263,
378, 379, 417, 426, 472, 500, 301n3
508, 516, 517, 520, 529, 530 trade agreements, 10
Old world/old producing country/ Policy, 10, 21, 23, 43, 64, 72, 73, 119,
traditional producing country 120, 122, 152, 156, 161, 168,
(TPC), 2, 5–11, 17, 43, 91, 145, 169, 173–174, 176, 203, 214,
220, 239, 245, 251, 254, 254n2, 217, 226, 250, 251, 253–255,
263, 319–323, 344, 441, 455, 254n1, 254n2, 265–284, 292,
457–460, 463–469, 463n1, 476, 294–296, 299, 304, 307, 309,
477, 480, 523–525, 527 357, 366, 391, 392, 404, 446,
Organic 447, 470, 489, 493, 494
certification, 30–31 wine, 10, 73, 249–251, 253, 265,
wine, 19, 28, 33, 35, 36, 138, 231, 267, 274, 277, 288, 447
445 Price, 2, 4–6, 9, 10, 19, 36, 39–41, 45,
Organization 60n7, 62, 64, 65, 67–69, 71, 72,
agricultural, 326–327 74, 79, 85, 87, 88, 90, 93,
industrial, 8–11, 13, 22, 132, 96–101, 106–108, 110, 111,
181–190 117, 118, 120–122, 124–126,
Origin, 4, 12, 25, 25n2, 34, 39, 50, 52, 132–136, 140, 142, 150, 153,
54n3, 63, 74, 83, 90, 99, 100, 156, 161, 162, 164, 168–175,
145, 147, 168, 178, 179, 185, 178, 180, 184, 188, 189, 191,
191, 197, 201, 202, 205, 211, 193–196, 204, 205, 208, 216,
212, 215, 220, 233, 238, 242, 219, 220, 233, 236, 238–239,
244, 254, 259–261, 276–279, 241, 242, 245, 251, 266,
281–287, 296, 301, 323, 268–271, 274, 287, 292, 293,
mmorag@uchile.cl
Index 539
296, 297, 321, 327, 328, 331, wine, 56, 64, 71, 73, 74, 82, 83,
337, 350, 352, 367, 371, 87–91, 93, 94, 96, 99, 100, 151,
373–375, 377, 384, 391, 392, 152, 163, 172, 178, 181, 196,
396, 399, 406, 408, 415–418, 205, 214, 220, 226, 240, 251,
428, 429, 433, 439, 441, 442, 266, 268, 271–274, 272n7, 278,
445, 447–449, 457, 458, 460, 278n11, 279, 287, 288, 296, 365,
464, 467–470, 468n4, 477, 479, 367, 384, 385, 399, 440, 464,
480, 497–499, 501, 503, 504, 477, 490, 501, 510, 511, 518
508, 514–518, 514n9, 520, 528
Prosecco, 4, 12, 66, 386, 421–434
Protected designations of origin (PDO) R
Argentina, 8 Regulation, 8, 10, 24, 26, 33, 38, 44,
Australia, 8, 49, 440, 459, 525 64, 72–74, 106, 122, 145, 152,
Chile, 8, 456, 459 153, 156, 212, 219, 234, 242,
China, 8, 19, 440, 526 245, 250, 253, 258, 261–263,
France, 8, 19, 24, 25, 78, 100, 286, 265–284, 294, 296–299, 302,
448, 459, 465, 525 302n5, 305, 310, 311, 369, 385,
Italy, 8, 19, 48, 50, 69, 73, 421, 525 386, 421, 449, 459, 467, 468,
South Africa, 8, 525 473–474, 478, 479, 511, 525,
Spain, 8, 78, 80, 82, 89, 92, 99, 286 527
United States (US), 8, 90, 525 Reputation, 8, 10, 12, 18, 24, 44, 57,
Protected geographical indication 64, 94, 148, 151, 226, 230, 231,
(PGI) 235, 245, 267, 282, 285, 323,
Argentina, 8 335n16, 336, 346, 349, 365,
Chile, 8 371, 373, 456, 463–481, 510,
China, 8 512, 517
France, 8, 19, 24, 25, 27, 33, 42, collective, 12, 64, 463–481
448, 449 Restaurant, 35, 36, 41, 66n11, 68,
Italy, 8, 52, 54n3, 64, 69, 73 100, 101, 118, 172, 179, 183,
South Africa, 8 188, 190, 195, 243, 372, 390,
Spain, 8, 78, 82 518, 519
United States, 8 Retail, 9, 57, 64, 65, 67, 68, 95, 96,
Proximity 99, 112, 117, 118, 121, 122,
geographical, 342, 353–355 125, 137, 140, 145, 148–151,
organized, 342, 352–357, 361 173, 188, 190, 191, 195, 205,
208, 209, 242, 243, 297, 308,
348, 351, 368, 408, 429, 434,
Q 467, 470, 476, 507
Quality Risk, 10, 84, 133, 174, 188, 192,
grape, 11, 51, 56, 57, 71, 72, 99, 271n6, 299, 305, 327, 346, 351,
156, 157, 176, 177, 189, 216, 352, 355, 356, 359, 367, 383,
227, 331, 333–335, 334n13, 385, 386, 412–415, 439, 440,
439, 479 466, 488, 500–504, 525, 526, 530
mmorag@uchile.cl
540 Index
S 253–263, 281–283, 286,

South Africa/South African 297–299, 305, 310–311,
competitiveness, 343 333n12, 371, 379, 396, 409,
efficiency, 211, 215–216, 261 488, 517
farm workers, 214–215, 219 Store/wine store, 35, 39–41, 96, 121,
fragmentation, 215–217 124, 173–175, 190, 191, 204,
geography, 215, 217–218 209, 243, 297
industry structure, 201–221 Strategy, 4–13, 45, 57, 63–66, 74, 89,
KWV, 203–205, 207–209, 213, 219 93–95, 97, 101, 102, 151, 168,
private cellar, 205, 212–213, 217, 172, 173, 175, 190–197, 216,
218, 220, 346 240, 241, 249, 250, 258, 261,
producer cellar, 205, 210–213, 217, 265–284, 303, 307, 308,
220 321–324, 340, 343–346,
producer wholesalers, 201, 204, 348–352, 356, 359–361, 363,
207–210 367, 371, 376, 378, 384–386,
wine grape farms, 211, 213–215 389, 390, 392, 398, 403–418,
Spain/Spanish 428, 433, 437–445, 450, 456,
distribution, 83, 86–87, 89–100 476, 478, 479, 489–492, 500,
domestic market, 90, 94–96 511, 515, 516, 519, 525,
employment, 82, 86 528–530
exports, 77, 86, 87, 90, 92–94, 100, Supermarket, 35, 39–41, 64, 67, 96,
101 140, 150, 173–175, 188,
farm net income (FNI), 84–85 190–192, 237, 241, 369, 372,
farm size, 81 390, 513, 515, 516, 518
grape varieties, 79, 83, 98 Supply, 8, 12, 22, 48, 52–68, 70, 71,
land tenure, 81 73, 74, 94, 97–101, 125, 132,
marketing strategies, 89–90 133, 140, 145, 190, 193, 194,
relationships along the chain, 204, 211, 219, 244, 251, 254,
97–100 265, 267, 268, 271, 272, 287,
vineyard, 4, 77–85, 87, 100–102 311, 311n9, 322, 335, 339, 343,
wineries, 86–90, 94, 95, 98–101, 344, 365, 366, 368, 375, 376,
168 386, 395, 415, 422–431, 433,
wine sector, 77–102 439–442, 444, 446, 447, 449,
Spirits, 17, 19, 25, 26, 38, 40, 44, 63, 467, 469, 470, 477, 494, 495,
122, 131, 151, 152, 204, 207, 501, 512, 525
209, 226, 234, 242, 257n8, 259, Surface, 21–25, 27n3, 29–31, 34, 51,
260n11, 279, 296, 304, 310, 376, 77, 81–84, 156–163, 179, 225,
377, 377n9, 475, 490, 515, 517 227, 346, 371, 443–445,
eaux de vie, 32 447–450, 496, 498, 501, 502,
Standards, 10, 81, 98, 175, 192, 509, 510, 512, 514, 519
208, 226, 234, 250, 251, Switzerland, 12, 456, 507–521
mmorag@uchile.cl
Index 541
T imports–exports, 106, 119–121,

Territory/territorial, 11, 18, 23, 48, 49, 334n15
73, 78, 178, 179, 195, 256, production regions, 107, 108, 117
272n8, 278, 281, 282, 299, 323, varieties, 107–110, 119
324, 339–361, 363–365, 368, wine production–consumption,
370, 371, 441, 456, 465, 474, 106, 113–121, 126
476
Terroir, 8, 10, 17–19, 25, 34, 37, 43,
74, 279, 322, 323, 344–346, V
361, 384–386, 390, 399, 423, Varietal, 7, 8, 25, 52n3, 54, 87, 93,
449, 474–475, 492, 510–512, 108, 110, 117–119, 145,
526, 530 147–149, 151, 153, 158, 162,
Tourism 165, 191, 194, 219, 323, 442,
oenotourism, 527 444, 445, 463, 463n1, 465,
wine, 73, 96, 175, 217, 229, 384, 469–471, 473, 498, 512
490, 497, 529 Variety/grape variety
Trade cepage, 8, 19
barriers, 10, 251, 252, 259n9, 260, wine grape, 48–51, 52n2, 52n3, 73,
280, 292, 294–297, 301, 310, 79, 83, 84, 157, 163, 180,
311, 500, 508, 514 183–184, 205, 211, 213–216,
wine, 2, 3, 5, 6, 8, 10, 18–19, 101, 219, 227, 230, 231, 245, 280,
251, 252, 258–260, 262, 330, 333, 384, 389–391, 393,
291–312, 365, 367, 470, 524, 395, 396, 399–401, 408, 418,
526–527 446, 496, 498, 501, 502, 504
Tradition, 8, 43, 47, 56, 58, 93, 261, Vertical integration, 11, 12, 74, 88,
267, 345, 363, 364, 376, 384, 209, 226, 241, 244, 246, 327,
391, 392, 423, 474–475, 529 335, 335n16, 385, 386,
Typicity, 322, 465 403–418, 437–450, 469, 524
backward, 437–450
Vine, 7, 21, 23, 24, 26–28, 32, 34, 43,
U 48–52, 54, 62, 78, 106n1, 111,
United Kingdom (UK), 3, 5, 19, 120, 123, 131–136, 142, 145, 156,
124, 138, 140, 149, 150, 171, 158, 162, 163, 179–181, 183,
197, 208, 256n4, 294, 296, 309, 212, 213, 216, 220, 225,
310, 364, 365, 369, 441, 444, 227–231, 235, 245, 256–258,
470, 501, 526, 527 272n8, 278, 279, 282, 325, 328,
United States (US) 332–334, 334n14, 335n16, 366,
distribution, 106, 110, 112, 117, 372, 385, 391, 393, 399, 421,
121–126 438, 443, 446–450, 466–470,
domestic, 114–119, 126 468n4, 472, 476, 489, 494, 508,
farm size, 9, 48–52 509, 526
mmorag@uchile.cl
542 Index
Vineyard, 2, 4, 7, 11, 20, 21, 23, 24, 321, 384, 385, 389, 390, 392,
26–28, 32, 34, 38, 43, 47–52, 393, 396, 397, 399, 466,
52n3, 54n3, 55, 59, 75, 77–85, 469–472, 474, 478, 480, 498,
87, 100–102, 106, 110–113, 514, 515, 518–521
126, 133, 134, 140, 142–145, winemaking, 7–9, 11, 12, 18, 23,
147, 148, 153, 155–157, 161, 29–35, 38, 39, 42–44, 52n3, 58,
163, 164, 168, 170, 177, 106, 113, 133, 134, 141, 147,
179–181, 183, 184, 188, 189, 150, 156, 157, 165–170, 179,
193, 196, 197, 212, 213, 216, 185, 186, 227–236, 239–240,
217, 225, 229, 231, 233, 235, 244, 245, 261, 301, 323, 363,
236, 240, 245, 266, 272, 272n8, 366, 372, 384–386, 389–399,
273, 277, 279, 323, 325–337, 406, 414, 417, 438, 441, 445,
334n13, 335n16, 335n18, 464, 466, 468–470, 476, 477
336n20, 336n21, 344, 351, 360, winery, 9, 11, 54n4, 55–57, 59,
365–367, 369–372, 376, 378, 63n8, 64, 65, 68–71, 69n13, 75,
379, 383, 384, 386, 389–399, 86–87, 89, 90, 94, 95, 98, 99,
406, 407, 425, 428, 434, 106, 110, 112–114, 116, 117,
438–450, 464, 466, 468n4, 119, 122, 125, 126, 132, 136,
469–475, 492, 496–498, 503, 137, 139–141, 145, 149–151,
507, 509, 512, 515, 518, 527, 153, 155, 158, 160, 162,
528, 530 164–170, 172–176, 185–189,
193–197, 216, 226–237,
239–242, 240n1, 245, 259n9,
W 302, 311, 323, 325–337,
Wholesaler, 42, 44, 67, 68, 71, 74, 334n13, 334n15, 335n16,
121–123, 126, 205, 208, 210, 335n18, 336n21, 343, 385, 389,
297, 321, 348, 376, 378, 406 391–393, 396, 425, 426,
Wine 428–431, 433, 434, 438, 439,
sparkling wine, 42, 54, 65, 66, 68, 442–444, 448, 450, 465, 469,
72, 74, 80, 93, 101, 138, 141, 471, 477–480, 491, 492,
160, 161, 172, 185, 197, 236, 494–498, 507–509, 515–520,
238, 245, 293, 294, 386, 390, 524
394, 396, 421–426, 433, 434, World Trade Organization (WTO),
442, 501 214, 251, 253–255, 254n1, 258,
winegrower, 11, 72, 186–188, 225, 259n10, 261, 262, 266,
230, 239, 240, 245, 321, 324, 279–282, 292, 295, 299, 301,
363–379, 384, 385, 390, 305, 306, 308–310, 312, 513
392–399, 405–407, 467, 468, World Wine Trade Group (WWTG),
525 10, 250, 251, 254, 255,
winemaker, 8, 9, 24, 29, 33–38, 42, 259–263, 299, 301, 301n3
55, 71, 143–144, 170, 183, 186, WTO, see World Trade Organization
188–190, 209, 228, 235, 320, WWTG, see World Wine Trade Group
mmorag@uchile.cl

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The Palgrave Handbook of

Wine Industry Economics

ISBN 978-3-319-98632-6 ISBN 978-3-319-98633-3 (eBook)

Library of Congress Control Number: 2018964901

© The Editor(s) (if applicable) and The Author(s) 2019

Cover illustration: Cosmo Condina Western Europe / Alamy Stock Photo

Part I Structure of the Wine Sectors Worldwide 15

2 The French Wine Industry 17

3 The Italian Wine Industry 47

4 The Spanish Wine Industry 77

5 The US Wine Industry105

6 The Australian Wine Industry131

7 The Argentinean Wine Industry155

8 The Chilean Wine Industry177

9 The South African Wine Industry201

10 The Chinese Wine Industry225

Part II Regulations in the Wine Sector 247

11 Introduction: Regulations in the Wine Sector249

12 International Wine Organizations and Plurilateral

13 The European Wine Policies: Regulations and Strategies265

14 Barriers to Wine Trade291

Part III Diversity of Organization in the Wine Industry 317

15 Introduction: The Diversity of Organizational Patterns in the

16 The Organization of Vineyards and Wineries325

17 Wine Co-operatives and Territorial Anchoring339

18 Diversity and a Shifting Power Balance: Negociants and

Part IV Backward Vertical Integration 381

19 Introduction: Outsourcing Versus Integration, a Key Trade-­

20 To Make or to Buy? A Managerial Trade-­Off of Winemaking

21 Vertical Integration and Financial Performance of French

22 The Prosecco Superiore DOCG Industry Structure: Current

23 International Perspectives on Backwards Vertical Integration437

Part V Efficiency of the Business Models in the Different Wine

24 Introduction: Does a National Model Exist Which Favors

25 Individual and Collective Reputations in the Wine Industry463

26 The Chilean Wine Cluster 487

27 Producing and Consuming Locally: Switzerland as a Local

28 Conclusion: What’s Next?523

Luis Miguel Albisu is Chairman Scientific Committee, Centro de Investigación y

Luis Miguel Albisu is Chairman Scientific Committee, Centro de Investigación y

Sofya Brand is postdoctoral researcher in the Department “Management, Marketing

Cristina Escobar is a Researcher and a Consultant from CREDA-UPC-­IRTA (Centre

Javier Merino is Professor of Economy and Project Evaluation at the Agrarian

Fig. 10.5 Wine distribution in China. (Source: MarketLine 2015 and

Fig. 22.3 Conegliano Valdobbiadene Prosecco DOCG’ supply chains, 2016.

Fig. 26.4 Evolution of wine grape plantings in Chile (ha) (1994–2014).

Table 5.4 Characteristics of California winegrapes crushed, 2016 113

The Palgrave Handbook of Wine Industry Economics examines varying models

© The Author(s) 2019 1

1.1.1 F irst Phase: Trade Growth Between the Developed

1.1.3 Third Phase: The Emergence of a New New World

Coord. by Alessandro Corsi

© The Author(s) 2019 17

2.2.1 France in the International Wine Trade

2.2.2 French Wine Production and Consumption

The annual growth of plantations is limited to 1% in Europe (OIV).

Wine production in France Wine Consumption in France

consumption (everyday or almost everyday). As for regular consumers, whose

Part I Structure of the Wine Sectors Worldwide 15

2 The French Wine Industry 17

3 The Italian Wine Industry 47

4 The Spanish Wine Industry 77

5 The US Wine Industry105

6 The Australian Wine Industry131

7 The Argentinean Wine Industry155

8 The Chilean Wine Industry177

9 The South African Wine Industry201

10 The Chinese Wine Industry225

Part II Regulations in the Wine Sector 247

11 Introduction: Regulations in the Wine Sector249

12 International Wine Organizations and Plurilateral

13 The European Wine Policies: Regulations and Strategies265

14 Barriers to Wine Trade291

Part III Diversity of Organization in the Wine Industry 317

15 Introduction: The Diversity of Organizational Patterns in the

16 The Organization of Vineyards and Wineries325

17 Wine Co-operatives and Territorial Anchoring339

18 Diversity and a Shifting Power Balance: Negociants and

Part IV Backward Vertical Integration 381

19 Introduction: Outsourcing Versus Integration, a Key Trade-

20 To Make or to Buy? A Managerial Trade-Off of Winemaking

21 Vertical Integration and Financial Performance of French

22 The Prosecco Superiore DOCG Industry Structure: Current

23 International Perspectives on Backwards Vertical Integration437

Part V Efficiency of the Business Models in the Different Wine

24 Introduction: Does a National Model Exist Which Favors

25 Individual and Collective Reputations in the Wine Industry463

26 The Chilean Wine Cluster 487

27 Producing and Consuming Locally: Switzerland as a Local

28 Conclusion: What’s Next?523

Cristina Escobar is a Researcher and a Consultant from CREDA-UPC-IRTA (Centre

Table 5.4 Characteristics of California winegrapes crushed, 2016 113

1.1.1 F irst Phase: Trade Growth Between the Developed

1.1.3 Third Phase: The Emergence of a New New World

2.2.1 France in the International Wine Trade

2.2.2 French Wine Production and Consumption

2.3 The Grape-Growing Sector in France

2.3.1 Ten French Wine Regions

2.3.2 A Production Segmented by AOCs and PGIs

2.3.3 Characteristics of Grape-Growing Farms

2.3.4 The Dynamics of Organic Farming

2.4 The Winemaking Sector in France

2.4.1 Wine Production: Yield, Colors and AOC Wines

2.5 Distribution Channels

2.5.3 Buying Wine

2.5.3.1 Mass Distribution (Super and Hypermarkets)

2.5.3.2 Focus on Cybercommerce

———. 2012. La Champagne viticole a maintenu son activité, Agreste Champagne-

3.2.2 Technical Aspects and Land Tenure

3.2.3 Farmers Classification

3.3.2 Wine Production Organization

3.3.2.1 Grape-Processing Technical Units

3.3.2.2 Bottling Technical Units

3.3.2.3 Grape Procurement and Supply Chains

3.3.3 Supply Concentration and Top Players

3.3.4 Marketing Strategies

3.4 The Distribution

3.5 Relationships Along the Chain

3.5.2 Intermediate Markets and Contracts